Once you file your income taxes, it’s typical to breathe a huge sigh of relief. The Internal Revenue Service puts each submitted return through a computer screening process, however. If the IRS finds mistakes on your income tax return, you will receive communication from the government to alert you to the detected problems.
When the IRS finds an error in your tax return, one of your first indications of the error might be a refund that is more or less than you were expecting. If the mistake resulted in a bigger refund, you will get a larger refund amount from the IRS. If the mistake results in a smaller refund, you’ll get a smaller amount. If the mistake results in a larger tax amount due, you will get details about the adjustments the IRS wants to make to your income tax return.
The IRS sends a detailed letter to a taxpayer whenever it makes adjustments to an income tax return. It’s common for this letter and an adjusted tax refund to arrive at different times, though. The letter will include complete information about the mistakes, including the information from your filed income tax return and the modified return completed by the IRS. The letter also includes a response page for you to use to follow up with the IRS.
Assessing the Changes
Once you get notice of an error, look over your income tax return and the IRS’s proposed changes so you understand how and why you made the mistake. You might find that you agree with the IRS’s findings and you accept the adjustment to your refund or the additional tax amount due. You could also conclude that you disagree with the IRS’s assessment of your income tax return. If this is the case, you have recourse.
Responding to the IRS
If you accept an adjusted refund, there’s no need to do anything. If you accept that you made a mistake that requires you to pay additional taxes, send in the response page that indicates your acceptance of the IRS notice, along with a check for the additional amount due. If you dispute the error, follow up with the IRS immediately by calling the telephone number provided in the letter you received. If the situation is complicated, write a detailed letter that explains why you believe your tax return was correct. Make copies of documentation that proves your calculations and send the letter and documentation to the IRS at the address provided in the letter.
Generally, the IRS reserves an audit for more complex or serious situations. The initial computer screening happens automatically with every return. The computer will assign a score to each return. A higher score increases the possibility of the IRS selecting a return as an "audit candidate." Possible audit triggers include hefty itemized deductions, investment income that doesn’t match the 1099 in your IRS file, charitable deductions missing required verification or an incomplete tax return, which leads the IRS to question what you may have forgotten. The highest-scoring tax returns in the audit candidate pool often proceed on to an actual audit examination.
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