The IRS has introduced a new type of audit recently, dubbed the short-time frame audit. This type of audit severely restricts the amount of time a client has to respond after their receipt of the first examination letter before the case is closed. The CPA Practice Advisor recently did an extended story on this new type of audit. We’ve distilled it down to the essentials below.
How It Starts
This new form of audit typically follows a predictable pattern. It starts with a request for an appointment via IRS Letter 3572. If you don’t respond within ten days a second correspondence, IRS Letter 5262, is sent with an examination report. If no response is received within 15 days, the case is closed and the opportunity for a local appeal is forfeited. The case is then sent to the Notice of Deficiency (NOD) unit. With some regularity, both IRS Letter 3572 and 5262 are mailed from the IRS on the same day, effectively reducing your total time to respond to 15 days. If you’re out of town or not keeping current with collecting your business mail, you could have an audit conducted and closed before you ever open an envelope!
What You Need to Do
The short timeframe involved here means acting with the utmost urgency if you receive this type of notice. Bring the notice to your tax professional immediately so you can discuss whether you have the documentation needed to substantiate the specific claims being audited and how soon you can deliver it.
If you’ve been able to contact your tax professional before the deadline specified in the letter, it’s recommended to give him or her Power of Attorney to be able to speak to the IRS on your behalf. This will allow your tax professional to contact the IRS examiner to set up an appointment, which will ensure your case isn’t closed. Begin collecting the necessary documents immediately.
What to Do If the Deadline Has Passed
In the event that your deadline is passed before you opened the letter, have your tax professional contact the examiner assigned to your case to determine if your case has already been closed and sent to the NOD unit. If it hasn’t, it may still be possible to have your tax professional work the case. If you’re too late and it’s already closed, you have two choices: pay the amount specified in the audit or file a petition in United States Tax Court. Neither of the two resolutions are quick-fixes. Once a case has reached the NOD unit, it can take 12-24 months to have it closed, and pushing an appeal through US Tax Court is lengthy process.
If you receive a notice from the IRS that you’re being subjected to a short timeframe audit, call you tax professional right away. Working through audits before they’re closed is a much simpler process than allowing the audit to be conducted and closed without your input.