IRS Tax Audit CPA discusses Notices | IRS Letter 566 (CG) and Notice CP2000 | Correspondence Audits

IRS Letter 566(CG) or Notice CP2000 marks the start of an automated inquiry called a correspondence audit. Correspondence audits are cost effective. Computer generated, these Notices generally focus on a few specific issues e.g. they might ask for documentation of your charitable contributions as listed on Schedule A of Form 1040. Of course business tax returns receive attention too.

• Letter 566(CG) states your return is being audited.
• Notice CP 2000 proposes changes to your return.

The IRS assumes they’re Correct

With any IRS or State tax audit they assume they’re correct and you must prove otherwise.

“Any IRS audit deserves prudence. But many of these automated Letter 566(CG) and Notice CP2000s, can be self handled. Be sure not to inadvertently increase the scope of the audit; stick to the stated issues.”
- Gary Bode, IRS tax audit CPA

Here’s how a Tax Audit CPA approaches IRS Letter 566 (CG) and Notice CP2000

Remember your situation is unique, and you probably don’t have much tax or IRS experience So, you can’t reasonably rely on this post alone for IRS audit advice. But here’s my basic process.

• CPAs read Letter 566 (CG) or notice CP2000 carefully. The format and terminology confuses folks who don’t read Financialese.
• Tax audit CPAs correlate Letter 566 (CG) or notice CP2000 to the underlying tax return. These first steps find the IRS issues, and the position they’re taking.
• CPAs check the documentation used to prepare the audited tax return.
• CPAs listen to your side of the story. Now we’ve established your perspective.
• CPAs automatically look at the potential State implications even if no contact from the State has yet occurred.
• Once both the IRS and client perspectives are known, the CPA determines the difference between them.
• CPAs usually request more time from the IRS. We usually get nine weeks, even if the taxpayer strung the IRS along.
• At this point I generally review potential options with the client including the pros and cons of each.
• When appropriate, CPAs request an Agent be assigned to handle the case.
• If the IRS is correct on Letter 566(CG) or Notice CP2000, CPAs generally ask the IRS waive penalties.
• If Letter 566 (CG) or notice CP200 is correct, CPAs generally advise satisfying the IRS ASAP. If you can’t pay the IRS demand, CPAs may look at an Offer in Compromise, via Form 656, to learn if the IRS will accept less than what you owe. This is the pennies on the dollar technique.
• A tax audit CPA also looks at an Installment Agreement to pay off the IRS in monthly payments.
• If the client is correct, CPAs prepare an air tight case to prove it to the IRS.
• Sometimes a tax audit CPA amends the return.

Is Letter 566(CG) or Notice CP2000 Correct?

Tax audit CPAs will refer you to a TIGTA (Treasury Inspector General for Tax Administration) report that says correspondence tax audit are “inacurate and overblown.” So, don’t be intimidated into assuming the IRS is always correct. Some internet chatter says that employment tax and investment issues are especially problematic.

Are IRS Notices the result of bad Tax Preparation?

Sometimes. We get new clients from IRS correspondence audits because these folks self prepared the tax return and didn’t get things the way the IRS likes to see it. However;

“IRS correspondence audits can occur even when the return is 100% correct.”
- Gary Bode, IRS tax audit CPA

Problem Area of IRS Audits

According to TIGTA, correspondence tax audits generate complaints about IRS handling of documentation. New clients do report high levels of frustration dealing with the IRS.

• Overlapping correspondence is one issue.
• Long waits at the local office is another.
• Prolonged hold times for call are common.
• Sometimes help from the IRS depends on the training of the Agent you deal with.
• TIGTA says the IRS mishandles a small percentage of documents.

“If you fax or mail documentation to the IRS, call them to verify they received it.”
- Gary Bode, IRS tax audit CPA

I’m tax audit CPA with a virtual office to serve you or your company wherever you’re located. Some local folks find the remote office more convenient. The CPA license is essentially national. We offer a free phone consult at (910) 399-2705. Why? Well it’s mixture of helping folks with simple issues and obtaining new clients. But we don’t pressure you on our services.

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