Tax audit CPAs routinely handle Internal Revenue Service Letter 566 (CG), Initial Contact Letter. Letter 566 (CG) marks the start of an IRS correspondence audit. A correspondence audit is the lowest level of IRS tax audit. But it’s still a tax problem and it deserves prudence and due diligence.
Hi, I’m Gary Bode, a tax audit CPA with a virtual office to serve you regardless of your address. I offer a free phone consult on most IRS tax audit issues; (910) 399-2705. I’ll give some insight into how a tax audit CPA approaches IRS Letter 566 (CG). But you can’t reasonably rely on this post alone as guidance for self-representation with the Internal Revenue Service.
What is IRS Letter 566 (CG)?
- Letter 566 (CG) states your return is being audited and lists issues the IRS wants to verify.
Can You Handle a Correspondence IRS Audit Yourself?
Sometimes. Not every case requires a tax audit CPA:
- I think it depends on what Letter 566 (CG) asks for.
- I think it depends on how money is at stake.
- I think it depends on whether tax fraud exists.
- Any tax audit is stressful. Sometimes employing a tax professional makes sense emotionally.
Tax Audit CPA tips on handling an Internal Revenue Service Letter 566 (CG)
“Keep your focus on the issues listed on IRS Letter 566 (CG). It’s easy to incriminate your self and expand the tax audit to other issues and other tax years.”
Gary Bode, tax audit CPA
Every situation is different. If you handle it yourself:
- I don’t suggest just accepting the IRS is correct. But the IRS believes they’re correct and it’s up to you to prove them wrong.
- Many times the IRS is correct for the information they have. Most information gathered by the IRS is income based. Providing legitimate deductions and tax credits is your CPA’s job.
- Understand Letter 566 (CG). Read it twice. Have a friend read it.
- Do your homework; read up on the tax issues involved.
- Just stick to the facts and don’t open up other areas of your tax return to scrutiny.
- Try not to open issues in any other tax returns.
- Don’t poke the Bear; be polite and professional.
- Don’t let emotions distract you.
- Don’t waste valuable defense time by just ignoring Letter 566 (CG).
- A correspondence audit is automated. Sometimes they list a fictitious agent! Be ready for some aggravation from over lapping IRS notices.
- Remember the IRS notifies your State of any tax audit findings.
- Is the tax issue a problem in other tax returns?
How CPAs handle an IRS Correspondence Audit
- CPAs check Letter 566 (CG) carefully.
- What tax year is it for?
- What tax form is it for?
- What tax issues are there?
- What’s the timeline?
- CPAs correlate Letter 566 (CG) to the underlying tax return.
- CPAs check the documentation used to prepare the audited tax return.
- Tax audit CPAs listen to your side of the story.
- CPAs usually pull your IRS transcripts.
- I like to know what the dollar consequences are. So I calculate that, sometimes using alternate scenarios.
- CPAs usually write to the IRS requesting more time.
If the IRS is Correct
- CPAs generally request the IRS abate penalties.
- 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 money as payment in full. This is the pennies on the dollar technique. Here’s one of our posts on Offer in Compromise, Form 656.
- A CPA also looks at an Installment agreement, Form 9465 to pay the IRS demand off over time. Here’s a post on Installment Agreements and Form 9465.
“The IRS usually has a valid point delineated on Letter 566 (CG), which typically is income related. But they don’t factor in legitimate deductions and tax credits.”
- Gary Bode, tax audit CPA
What if Letter 566 (CG) is Wrong?
The IRS calculates their demand to render the highest amount of payment due. perhaps just to get your attention. They don’t really expect that entire amount. They understand that if, say, you didn’t report a Form 1099 MISC you received as a subcontractor, you didn’t report the expenses associated with it either. Our post on back taxes covers this issue thoroughly. So here, your tax audit CPA would look at presenting an amended tax return on Form 1040-X showing your side of the story for that Form 1099 MISC. Here’s a post on Amended Tax Returns, Form 1040-X. I generally try to build your case like a college paper to a grumpy professor; a succinct cover letter and well-organized documentation. I keep the discussion confined to the Letter 566 issue. When appropriate, CPAs request an actual IRS Agent be assigned to handle the case.
Progression of a Correspondence Audit
From the opening round of Internal Revenue Service Letter 566 (CG), things escalate slowing but surely.
- Here’s our post on Notice CP501 and Notice CP504. Here’s our post on Form 668(Y), Notice of Federal Tax Lien. Here’s our post on Form 12277, Withdrawal of Federal Tax Lien.
I’m a tax audit CPA with a virtual office so I can represent you regardless of where you live.
We offer a free initial phone consult at (910) 399 2705. If you read a few posts and like our ability and proactive philosophy, don’t let distance dissuade you from calling.
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