When big sports events are on the horizon I tend to get nostalgic and think about the “good ole’ days”. With the Olympics opening ceremony on Friday night and the U.S. Men’s basketball team’s first game on Saturday, memories of the 1992 Dream Team in Barcelona flood my mind.
Looking at its roster, this is by far the greatest team put together in the history of sports. The team was stocked full of hall of fame talent, which of course was led by Michael Jordan. I remember watching every minute of every game as a child. The other countries had absolutely no shot – The Dream Team won each game by an absurd average of 44 points. The closest of all of the games was the 117 – 85 gold medal game victory against Croatia!
I could go on and on about this team, but let’s move on to the question of week:
I received a tax audit notice in the mail, what do I do???
Without hesitation my answer is send a copy of it to your tax advisor immediately. It always pays to have a professional take some time to review and provide advice on how to resolve it. You may receive a notice for a variety a reasons but I am going to focus on notices for which money is owed.
In general, the amount of tax/penalties/interest that is shown as due on the initial notice is not what you should truly be paying. Typically when a tax form isn’t filled out correctly or sufficient support for amount on the tax return wasn’t sent in to the IRS, the amount is completely disallowed from your taxes. This is why in most cases the bill is such a large number. The IRS puts the onus on you to prove why the number belonged on your taxes in the first place. Let’s take a look at a situation that seems to happen at least once every year:
Every year you gather up your tax documents in early February and have your CPA file your taxes by the middle of February. Something seems strange this year, its mid-March and you haven’t gotten your refund. What happened?!?!? Lo and behold, you find a letter in the mail from the IRS stating that you owe them $5,000. Being as savvy as you are, you immediately e-mail a copy of the letter to your CPA. Smart move. Instead of forking over the $5,000, your CPA determines that you did not send in a copy of a Form 1099 from XYZ Inc brokerage account when you sent in your tax documents. After reviewing the 1099 it is determined that the IRS did not apply the purchase price of your stocks (cost basis) against your proceeds and you only owe fraction of the $5,000. What a relief!
Just seeing a letter from the IRS in the mail brings a great deal of unwanted stress and anxiety for most people. Why put yourself through this? The best thing to do is put the issue in the hands of a professional. In most cases, the resolution to a tax notice can be happen quickly and painlessly. It may even save you a ton of money!
Have you recently received a tax notice in the mail? If so I would be happy to review it for you. Please feel free to reach out to me directly.