Countdown to Tax Audit. Is this normal??!!?

Question

1. March 2006: Received letter from IRS saying we owe money (with handy return envelope enclosed) saying we need to pay said amount or else. We have to sign letter (saying we are guilty) and mail back payment within 30 days.
2. Tax Accountant says: don't sign and don't pay
3. Okay didn't do that. Instead we sent a letter saying we disagree.
4. No answer
5. July 2006: Letter from IRS saying we are now delinquent and have a couple thousand dollars in penalties. Pay us now and we will stop the penalties (stop hurting you). If you disagree, file a petition.
6. Called tax accountant. Said: don't sign and don't pay.
7. Okay. Didn't do those things. Filed our petition.
8. Another set of Deliquency Letters.
9. Hired our little US Govt Tax person for $60. Filled out our paperwork.
10. Case # sent
11. Letter from Tax attorney asking for all reciepts etc.
Is this normal? I can't but feel we were never actually audited until after we hired the Govt Tax guy. What else can we do?

Obviously, we didn't ignore anything. In fact, it scared the crap out of us! That is why everytime we received a letter we would consult our tax person. We just did what they told us. We are not experts, that's what we pay them for. By the way, it was for deductions, and after a week I finally finished printing out every singel receipt. It's a good thing I keep everything.

Answer 1

First time you receive a letter from IRS that is an audit but it is conducted through the mail. That's how the majority of audits are conducted.
First time you responded you should have had return receipt requested since now you have no proof you responded. However, show your original letters to fight penalties claiming your letters were never answered.
The tax attorney is not auditing you but gathering evidence in your defense.
It is true you shouldn't sign saying you agree but if you write saying you disagree that does have to be signed.
You didn't explain why they originally said you owe.
If its because of deductions the burden of proof is on you.
If its because of unreported additional income burden of proof is on IRS. If because of unpaid tax you should pay undisputed part and interest and ask waiver of penalties since your orig letters went unanswered.

Answer 2

Don't sign and don't pay, but don't ignore either.

Go over your case with your accountant and/or attorney. They will do all the contacting of the IRS on your behalf. When you reply, you are likely to shoot yourself in the foot. When your acct/attorney replies, they know what trigger words to avoid in the reply to increase the likelihood you win your case.

Yes, the incredibly protracted time and the intervening threatening letters are normal. It can take a year or more to settle a case in your favour.

You were in an audit from day one. Your accountant may not have a lot of experience with audits, or he may be overworked, or he may have been doing a fabulous job; the machinery of the IRS moves so slowly it's hard for anyone outside of your accountant's office to know whether or not s/he was doing a good job. You've got a new guy now, just be aware that it can take ages and ages for it to all go away.

Answer 3

do whatever the IRS tells you. do not ignore tax letters and notices. you dont want a delinquent file. if you are in disagreement and can prove it, you shouldve written in your argument by now. you shouldve paid when you had the chance. now you have to come up with tax receipts that you dont have and are under audit. you will end up owing back taxes and penalties and interest. good luck bro.

Answer 4

I agree, this is normal, unfortunately. The problem is that you rarely deal with just one person at the IRS. Keep on top of it with your CPA. Leave the CPA to handle all the paperwork but make sure you get regular progress reports.