Dear Dick

I file my taxes on time by April 15.

Then, in no time, I get a tax notice from the IRS.

Some years, I get several tax notices from the IRS

These IRS tax notices are really stressful to deal with.

First, it’s hard to understand what the IRS wants.

The writing is technical.

The paragraphs list tons of numbers and calculations of tax deficiencies, big penalties, and interest charges they say I owe.

The IRS tax letters are long six – pages and even more.  The lines are packed single spaced.

The deadlines to reply are always tight.

I can barely understand what the IRS wants.  How can I try to explain and defend myself?

“Marty”

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Dear “Marty”

Let me explain how IRS tax notices work.

First, you are not alone.

Per the IRS Taxpayer Advocate, you and many other taxpayers experience difficulties with IRS tax notices or “correspondence audits.” Once a return is selected for examination, the IRS notifies the taxpayer by letter and, as the name implies, conducts the audit via correspondence.

Correspondence audit letters fail to provide a point of contact – the taxpayer is not given a direct phone number or the name of an IRS employee to contact. Instead, the letter provides a phone number for all correspondence audits.

If no response to the initial contact letter is received, the IRS generally makes no effort to contact the taxpayer before proposing adjustments, issuing a Statutory Notice of Deficiency, and closing the case. Taxpayers wishing to speak with someone regarding an audit are limited to calling a representative on a toll-free line.

The correspondence audit process is meant to create efficiency; however, these audits can present a host of challenges for our nation’s most vulnerable taxpayers and have downstream consequences for taxpayers and the IRS

Correspondence Audits Can be Challenging for Low Income Taxpayers

The correspondence audit process works single-year, single-issue cases that the IRS believes it can easily resolve via mail, using an automated process to achieve efficiencies that enable the IRS to complete a high volume of correspondence audits with a limited number of examiners.

Per the IRS, 1,094 correspondence audit examiners conducted 559,369 correspondence audits during fiscal year FY 2019.

The IRS views correspondence audit issues as “non-complex.” However, low income taxpayers under audit may not share this perspective.

Low income taxpayer correspondence audits often involve Earned Income Tax Credit (EITC) and other refundable credits that frequently require consideration of complex factors that include a taxpayer’s income, marital status and relationship to dependents or children claimed.

Navigating these audits can be complex for low income taxpayers, who are more likely to experience lower literacy rates and often possess limited English proficiency.

Low income households are more likely to be unbanked, which can impact a taxpayer’s ability to substantiate income and expenses.

They tend to be more transitory, a factor that negatively affects a taxpayer’s ability to receive and respond to IRS correspondence in a timely manner.

Low income children are more likely to live with a single parent, in a multigenerational household, in a cohabiting household, in a family with at least one non-biological child, or in a shared custody arrangement, rendering the application of the “qualifying child” rules much more complicated for low income taxpayers.

Low income taxpayers generally experience difficulty reaching the IRS for assistance.

Low income taxpayers are the most affected by correspondence audits

More than half of the individual audits conducted by the IRS in FY 2019 were conducted on taxpayers with total positive incomes below $50,000, with 82 percent of these low income taxpayers claiming the anti-poverty EITC.

The majority of these audits (92 percent) were conducted via correspondence

If the tax notice has been returned to the IRS, the IRS deems the taxpayer to be unresponsive.

The IRS allows the tax deficiency, penalties, and interest charges to cumulate making the tax problem grow even larger.

Communication barriers that hinder low income taxpayers

82 percent of these low income individual audits are completed by the IRS’s Wage and Investment (W&I) Division.

IRS W&I correspondence examiners are responsible for both conducting correspondence audits and answering calls for assistance.

However, most of the IRS’s W&I correspondence audit resources (96 percent in FY 2019) were devoted to conducting audits.  Only four percent was applied toward answering the telephone inquiries these audits generated.

The level of IRS telephone service is low, making it difficult for many low-income taxpayers to reach the assistance they need to comply with their audit notices.

Low-Income Taxpayers are Rarely Represented During the Correspondence Audit Process and Personal Interaction is Limited

Although 55 percent of the low-income taxpayers audited in FY 2019 had their returns completed by a tax professional, only three percent of these taxpayers had professional assistance during the correspondence audit process – making low income taxpayers the population most subjected to individual audits, the least represented by tax professionals, and the most reliant on IRS correspondence audit toll-free lines for assistance.

Personal interaction is limited, with the IRS spending little time on these audits.

Typically, low income taxpayers do not respond to IRS correspondence.  As a result, low-income taxpayer correspondence audits produce the lowest agreement rate, the highest no-response rate, and the highest volume of cases assessed by default.

Conclusion

Eligible taxpayers should reach out to the AACA LITC (Asian American Low Income Taxpayer Clinic) for assistance with correspondence audits. As an agency independent of the IRS, the AACA LITC represents taxpayers in audits, appeals, and tax collection disputes before the IRS and in court, including the Tax Court.

AACA LITC’s Qualified Tax Experts provide representation, education, and advocacy for individual taxpayers who who are low income or speak English as a second language (ESL).

Please contact AACA Low Income Taxpayer Clinic (AACA LITC) for an appointment at

(617) 426-9492 Ext. 285 or litc@aaca-boston.org

Dick

Richard Soo Hoo CPA, AACA LITC