The IRS will give a you a fair chance to defend your reporting. If you end up owing, you may apply for some penalty relief or you can work out a payment plan with the agency, tax experts say.
Douglas Boneparth, a certified financial planner in New York, said he himself as well as some of his clients have gotten IRS notices, which he calls "love letters." He reassures clients by telling them, "it might seem scary, but don't freak out."
From his prospective, Boneparth said smaller business owners and entrepreneurs are being targeted, which usually stems from payroll issues. As for individual taxpayers, innocent miscalculations might occur because "you fat-fingered something on TurboTax."
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Receiving an audit letter, however, is a more serious matter and carries an air of suspicion. Since audits are in-depth investigations, they can be time-consuming and costly. You must prove your income, deductions and credits with the necessary paperwork.
Some taxpayers get audited because the IRS is auditing another individual with whom they did business. Most audits are handled through the mail, with about a third conducted face to face, the agency says.
Responding to an audit can cost $2,000 to $5,000 but can reach into the "tens of thousands of dollars" in extreme cases, said Guarino. If audited, his firm will charge extra to handle it — which might leave some clients feeling like they're "paying for the tax return twice."
Sometimes, there can be a silver lining: Not every IRS notice or audit leads to a negative outcome. According to IRS data, 37,000 audited returns earned a bigger refund in 2016.