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IRS Letter 525: How Do I Respond?

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    You don’t even have to open the letter for your heart to start pounding and your stomach rolling with tension. The return address is enough to instill fear. You take a deep breath, rip open the flap, and find yourself staring at an IRS audit letter 525.

    Irs Audit Letters 525

    The IRS held 509,917 audits last year, recommending payment of an additional $12.9 billion in taxes. The IRS is increasing its audit focus on high-income taxpayers. This is due to estimates that the difference between taxes people owe and taxes they pay is around $1 trillion every year.

    That doesn’t mean people of middle-low income levels are immune to audits. Anyone may receive an IRS letter 525. No matter what your pay scale, any IRS audit notice will leave you wondering about the steps you need to take.

    Keep reading for information on what your obligations are, how to respond to IRS letter 525, what the legal process requires, and how to secure the best possible outcome.

    Irs Letter 525

    What Is IRS Letter 525?

    When you receive IRS Letter 525 it will contain a report of adjustments the IRS is proposing be made to your tax return. To learn how the IRS made the decision that an adjustment is necessary, look at everything in the letter which includes:

    If you are in agreement with the suggested changes, sign and return the adjustment form. No further action is necessary if the change was an increase in your refund. If you owe additional tax, follow the instructions and make sure you pay the balance by the date it is due.

    If you do not agree with their proposal, you need to submit a request for an appeal. Refer to the IRS publications and follow their appeal/protest procedures. This includes filing your appeal within 30 days of the IRS letter 525 notice date.

    If your taxes were prepared by a certified public accountant (CPA) or other tax preparation service, they may be able to help you with a determination on whether to agree or disagree with the IRS findings. If you plan to file an appeal, your best course of action is to consult with experienced tax attorneys who are knowledgeable about the legal requirements for the IRS letter 525 and of the IRS appeal process.

    Properly Submit a Request for an Appeal

    Appeal Irs Letter 525

    How to File an Appeal

    Your IRS 525 letter may include a phone number you can call to begin the appeal process. While this may seem the easiest and fastest way to reach a resolution, it isn’t necessarily the best. Making a phone call does not provide any written proof you took appropriate action.

    It is better to submit a written request explaining the reasons you disagree with the IRS findings. While it is possible to follow the steps on your own, having qualified tax attorneys prepare the appeal gives you a larger chance of a successful outcome. They are familiar with how the IRS views specific information and documentation that will support your position.

    Your mind is likely asking “what is an IRS audit going to do to me financially?” When those thoughts get tangled with the legal process, critical steps can get missed. Every notice you receive from the IRS will have a response deadline.

    Missing those deadlines will result in you losing your right to appeal an auditor’s change with the IRS Office of Appeals. The IRS will issue a notice of deficiency and send you a notice that you have 90 days to file a petition with the U.S. Tax Court.

    The IRS prefers to reach a settlement agreement rather than engage in litigation. If a settlement is not reached, the IRS will issue a statutory notice of deficiency requiring you to pay the disputed tax. Your tax attorney will handle any settlement negotiations and follow the appropriate steps to file a written appeal.

    Audit Letter Appeals

    Steps to Writing an Appeal to IRS Letter 525

    After you review all the information provided with your IRS 525 letter and decide you do not agree with the findings, you need to file an appeal within 30 days of when the notice was sent. Your IRS disagreement letter response will need to be sent by mail or fax and include:

    After they review your appeal, the IRS may agree with your response. If they do not agree they may schedule you for another audit.
    Irs Small Case Requests

    Small Case Request

    If the changes the IRS proposes are less than $25,000 in additional tax and penalties, you may submit a small case request on Form 12203, Request for Appeals Review . You must fill out the form completely, then follow the steps for submission. This includes returning the form in the envelope the IRS provides.

    You may represent yourself in appeals. If you wish to have representation, they must be an attorney, CPA, or enrolled agent authorized to appear before the IRS.

    If you want your attorney or representative to discuss the case without you present, you must submit Form 2846, Power of Attorney and Declaration of Representative. This form must contain the signatures and signing date of both you and each representative. You may want assistance from Silver Tax Group when filling out the form.

    If your tax liability exceeds $25,000, you or your attorney will need to prepare a formal written protest.

    Write An Irs Audit Letter Appeal

    Formal Written Protest

    Formal written protest procedures are provided in IRS Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree. Take a look into IRS form 5701 – Notice of Proposed Adjustment. Your formal protest must include a statement that you are appealing the IRS proposal of changes and include with your protest the following information:

    The penalty of perjuries statement requirements are different if you are representing yourself or if an attorney is filing on your behalf. The person submitting the protest must sign below the written perjury statement.

    Irs Case

    Office of Appeals

    The Office of Appeals operates independently from the division of the IRS that proposes changes to tax liability. It is also the only level of appeal within the IRS.

    The appeals division considers the arguments of both sides in a tax dispute and makes a decision by applying relevant tax law. This includes court decisions and other legal authorities relative to the case facts. The majority of disputes reach a resolution at the appeals level without litigation.

    This is usually achieved through an informal conference. Your attorney may appear on your behalf or with you. At that time you will discuss all areas of dispute and your reasons for disagreeing with the IRS findings.

    One requirement is that the appeal argument(s) must be based on tax law. They will not give consideration to arguments that are made due to moral, political, religious, constitutional, or conscientious objections.

    Because the IRS has a legal requirement to assess any proposed taxes within a specific period of time, they may request you extend that deadline. If you do not agree to an extension of the finalization date, the IRS Office of Appeals will refuse to hear your case.

    Appeal Audits In Court

    Court Action

    If you are unable to reach a settlement with the IRS Office of Appeals, you may file a petition with one of the following courts. You must meet that court’s jurisdictional and procedural requirements:

    Each court can provide you with a copy of its rules. If you plan to take your appeal to this level you definitely want an experienced tax attorney representing you. Each of these courts has separate procedures, requirements, and court rules that you must comply with. Failure to follow all procedures and deadlines may result in the dismissal of your case.
    Penalties From Tax Exemption

    Penalties From Tax Examination

    The penalty amount will depend on how much you underpaid on your taxes. The most serious penalty is incarceration. That is only for serious offenders committing tax-related crimes. The majority of cases are people who will have to pay interest from the date they filed the original return until they pay the tax. The IRS may also impose monetary penalties dependent on the seriousness of your tax reporting error.
    Irs Audit Reports

    IRS Audit vs IRS Examination Report

    The IRS usually begins audits within a year after you file your return. Most audits are complete within 3-6 months. An IRS audit is a review or examination of the accounts and financial information of an individual or company. The goal is to determine if the person or business is reporting in accordance with tax laws. They also verify if the income on the reports is correct. There are three types of examinations:

    An IRS audit and IRS Examination are the same things. A computer system in the IRS uses a scoring function, and a high score will likely result in your return receiving a review. Taxpayer returns are selected for examination for a variety of reasons.

    Things the computer looks for include a discrepancy between your total deposits and the amount of income you report on your tax return. The income is reflective of their review of your financial statements, investments, and bank accounts.

    The IRS has a 3-year period to decide if you made any mistakes when filing your return. If the amount exceeds 25% of your income, they have a 6-year examination window to work with. If you file a fraudulent return or fail to file, there is no statute of limitations.

    Audits Irs Letter 525

    If You Can’t Afford to Pay...

    If you are unable to pay the amount the IRS determines is an additional tax obligation, there are options available. The biggest mistake you can make is ignoring the notices. You must show you are in compliance with the IRS requirements by filing tax returns on time and paying the balance due or setting up a payment plan.

    The IRS imposes severe tax penalties and interest, so working out a payment plan or securing a loan that allows you to pay the balance are your best options. You may also want to consider using the IRS Fresh Start Program. This program allows people who owe back taxes to pay their obligation without the risk of liens being placed against their homes or vehicles.

    Audits Irs Letter 525

    Can My CPA or Attorney Handle My IRS Audit Letter 525?

    The majority of CPAs and attorneys only handle a few minor IRS problems each year, and typically not IRS audit letter 525. By retaining an attorney that specializes in IRS tax conflicts and law, you are gaining the experience and knowledge of a professional that works in this area of law every day. This includes being up-to-date on the constantly changing laws, rules, and regulations of tax law.

    Don'T Risk Facing The Irs Alone

    Don’t Risk It Alone

    When you are facing any type of problem with your taxes, Silver Tax Group can help. We can assist you with an IRS audit, stop the IRS from garnishing your wages, keep tax payments and penalties from growing out of control, and more.

    Contact Silver Tax Group using our convenient online form or call today to schedule a consultation regarding your tax-related questions.

    FAQs about IRS Letter 525

    IRS Letter 525 is used by the Internal Revenue Service (IRS) to inform taxpayers about proposed changes to their tax returns.

    The Letter 525 provides the reason for the proposed changes, includes the examiner’s contact information, and a deadline to respond if the taxpayer disagrees with the proposed changes or requires further explanation.

    If you receive IRS Letter 525, you should carefully review it to understand why the IRS proposes to change your tax return. Ensure you have all supporting documents and evidence to support your tax filing. Depending on your agreement or disagreement with the proposal, you can either contact the examiner or file a written protest.

    Yes. If you disagree with the proposed changes in IRS Letter 525, you have the right to file a written protest. This must be filed within 30 days of receiving the letter.

    If you cannot resolve the disagreement with the proposal, you can request a conference with an Appeals Officer or proceed to a formal hearing with the Office of Appeals.

    Yes, taxpayers also have the option to request mediation or seek assistance from the Taxpayer Advocate Service.

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