Letter 525: 30-Day Letter to Appeal Results of Audit or Examination

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Letter 525 tells you the proposed results of an IRS audit and how much you’ll owe. You have 30 days to appeal if you don’t agree with the changes.

Why does the IRS send letter 525?

If you receive a Letter 525, it shouldn’t be a surprise. You should have already received a notice of an IRS audit or examination. Letter 525 is the IRS’s response to any additional information you provided after receiving the original notice.

The letter contains a proposed adjustment of the tax you owe. Usually, there will also be penalties and interest. It’s possible that an audit could result in you owing less, but the IRS usually audits you because it believes you underreported your income on your tax return.

What tax year is your letter for?

When you receive an IRS letter, you should always check what tax year it’s for. It may not be your most recent tax return. The IRS has up to three years to audit you in most cases and may have longer in cases of substantial underpayment, failing to file tax returns, or tax evasion.

If you’re under audit for multiple years, check whether your letter is the IRS finding for each year or only one year.

What if I don’t know whether I should accept the proposed change?

If you don’t know whether you should accept the proposed change, talk to a tax professional as soon as possible. You only have 30 days to give your response to the IRS (that’s why Letter 525 is called a 30-day letter). The clock starts when you get your letter not when you hire a tax professional. If you wait until the last minute, a tax professional may not have enough time to give you the assistance that you need.

What if I agree with the changes on the IRS notice?

If you’ve reviewed the changes the IRS explained in Letter 525, you should pay the balance stated on the letter. If you can’t pay the additional tax in full, you should make payment arrangements as soon as possible.

What if I don’t agree with the changes?

If you don’t agree with the proposed change in what you owe, you have until the date stated on the letter to appeal to the IRS Office of Appeals. This is a group within the Internal Revenue Service, but it is not your original auditor. IRS employees working in appeals are generally more experienced and often do overrule the initial audit if you show a sufficient reason why they should.

Your response may include additional supporting documentation and/or a more detailed explanation of why you believe your interpretation of the tax rules and regulations is correct. This is your last chance to respond to your IRS audit without going to Tax Court.

Another move you can make before sending in your formal appeal is to request an informal conference with your tax examiner’s manager. If you’re not the type to complain to the manager, you should know this is a normal move as long as you’re polite about it. Examiners can make mistakes, and part of the manager’s job is to make sure that they don’t.

Should you pay even if you don’t agree?

It may be to your benefit to pay any taxes that the IRS says you owe even if you don’t agree. If you win your appeal, you will get a refund. If you wait to pay until you lose your appeal, you will pay more in interest and penalties. Interest and penalties go back to when your original tax return was due. They’re not based on when you receive the IRS finding letter or when your appeal is over.

What happens if you don’t respond within 30 days?

If you don’t respond within 30 days, the IRS will usually consider the proposed change to be final. In other words, they assume if you don’t respond, you don’t object or can’t support a different position.

You will get a Letter 3219 Notice of Deficiency or Letter 531 (90-day letter) notice that you owe money. You will then have 90 days to appeal to the United States Tax Court. If you don’t pay or appeal, the IRS will start collections actions against you.

Can IRS Letter 525 affect my credit?

The IRS doesn’t usually send tax debts to the credit bureaus. In addition, tax liens no longer show up on your credit report.

Where can you go for assistance?

If you aren’t already, you should strongly consider working with an Enrolled Agent or other tax professional to help you respond. Each time your audit goes to the next stage, it becomes harder and more expensive to overturn.

If you wait until you have to appeal in Tax Court, you will have to hire an attorney or U.S. Tax Court Practitioner to represent you. CPAs and Enrolled Agents don’t have automatic rights to practice in Tax Court if they don’t have one of those credentials.

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