Definition
A 30-Day Letter is a formal notice from the Internal Revenue Service (IRS) issued to a taxpayer following an audit. This letter communicates the IRS’s proposed changes to the taxpayer’s return and gives the taxpayer 30 days to agree with the changes or file an appeal. The letter marks a significant step in the audit process and often precedes further legal or administrative actions if the issues are not resolved.
Examples
- Individual Taxpayer: After auditing a taxpayer’s return, the IRS determines that additional taxes are due due to unreported income. The IRS sends a 30-Day Letter outlining the proposed changes and amounts owed.
- Small Business: Following an audit, the IRS finds discrepancies in a small business’s reported expenses. A 30-Day Letter is sent to the business owner, detailing the proposed adjustments and the consequences if not appealed within the stipulated 30 days.
Frequently Asked Questions
What should I do if I receive a 30-Day Letter?
You should carefully review the proposed changes, consult a tax professional, and decide whether to agree with the changes or file an appeal. You must respond within 30 days.
Can I request more time to respond to a 30-Day Letter?
Yes, you can typically request an extension to submit your response. A successful request will depend on the circumstances and the discretion of the IRS.
What happens if I ignore a 30-Day Letter?
If you ignore a 30-Day Letter, the IRS will proceed with the proposed changes, and the matter may escalate to further IRS collection actions.
Can I still negotiate with the IRS after receiving a 30-Day Letter?
Yes, receiving a 30-Day Letter does not eliminate the possibility of negotiating or settling with the IRS. However, any negotiations must occur within the specified 30-day period or upon receiving an approved extension.
Revenue Agent Report (RAR)
A report prepared by an IRS Revenue Agent summarizing the findings of an audit, including proposed adjustments to the tax return.
Appeals Office
The IRS branch that handles taxpayer disputes over audit findings, allowing an impartial review of the contested changes.
Notice of Deficiency (90-Day Letter)
A formal notice issued by the IRS allowing 90 days to contest a tax deficiency before it becomes final. It often follows an unresolved 30-Day Letter.
Online References
Suggested Books for Further Study
- “Stand Up to the IRS” by Frederick W. Daily
- “Taxpayer Advocate Service: IRS Audits and Appeals Process Guide” by National Society of Accountants
- “The Complete Audit Guide: How to Survive the IRS and Prove Your Expenses” by Vernon Jacobs
Fundamentals of 30-Day Letter: Taxation Basics Quiz
### What is a 30-Day Letter?
- [x] A formal notice from the IRS giving the taxpayer 30 days to appeal the proposed finding of a Revenue Agent.
- [ ] A notification sent by the IRS to confirm payment of a refund.
- [ ] A request for additional documents for verifying tax returns.
- [ ] A receipt for tax payment.
> **Explanation:** A 30-Day Letter is a formal notice from the IRS giving the taxpayer 30 days to respond to proposed changes to their tax return by a Revenue Agent.
### Who is the 30-Day Letter issued by?
- [x] Internal Revenue Service (IRS)
- [ ] State tax authorities
- [ ] Local tax authorities
- [ ] Department of Justice
> **Explanation:** The Internal Revenue Service (IRS) issues the 30-Day Letter following an audit of a taxpayer's return.
### Can a 30-Day Letter be ignored without consequence?
- [ ] Yes, there are no penalties.
- [ ] Yes, but taxes will still be due.
- [x] No, ignoring it may lead to further IRS action.
- [ ] Yes, if you dispute the findings informally.
> **Explanation:** Ignoring a 30-Day Letter may lead to further IRS actions, including enforced collections and a potential Notice of Deficiency.
### What is the subsequent step if disagreements aren't resolved within 30 days of receiving the letter?
- [ ] Sending multiple letters to the IRS.
- [ ] Ignoring the issue.
- [ ] Applying for a tax refund.
- [x] Receiving a Notice of Deficiency or 90-Day Letter.
> **Explanation:** If disagreements are not resolved within 30 days, the IRS may issue a Notice of Deficiency, granting 90 more days to contest the changes before they become final.
### What can a taxpayer request to extend the response time to a 30-Day Letter?
- [x] An extension request.
- [ ] Informal letter of complaint.
- [ ] Another 30-Day Letter.
- [ ] Appeals request.
> **Explanation:** Taxpayers can request an extension to reply to a 30-Day Letter.
### Who prepares the Revenue Agent Report that accompanies the 30-Day Letter?
- [ ] An IRS appeals officer.
- [x] An IRS Revenue Agent.
- [ ] Taxpayer's accountant.
- [ ] The Department of Justice.
> **Explanation:** An IRS Revenue Agent prepares the Revenue Agent Report summarizing audit findings.
### What is one purpose of the 30-Day Letter?
- [x] To give taxpayers an opportunity to appeal the proposed adjustments.
- [ ] To collect overdue taxes immediately.
- [ ] To finalize audit findings.
- [ ] To refund overpayment.
> **Explanation:** The main purpose is to give taxpayers time and opportunity to either agree with or appeal the proposed audit adjustments.
### Can taxpayers represent themselves during the appeal?
- [x] Yes.
- [ ] No, they must hire an attorney.
- [ ] No, they must hire a CPA.
- [ ] No, they must consult the IRS first.
> **Explanation:** Taxpayers can represent themselves or be represented by a tax professional.
### What is an alternative document if the taxpayer does not agree within the 30-Day period?
- [ ] An additional audit.
- [ ] A Demand Notice.
- [x] A Notice of Deficiency.
- [ ] A Preliminary Notice.
> **Explanation:** If no resolution is reached within the 30 days, a Notice of Deficiency (90-Day Letter) may be issued.
### What generally accompanies a 30-Day Letter?
- [ ] Tax refund check.
- [ ] Demand letter.
- [x] Revenue Agent Report.
- [ ] IRS form W-2.
> **Explanation:** The Revenue Agent Report, which contains specifics about the audit findings and proposed changes, generally accompanies the 30-Day Letter.
Thank you for exploring our comprehensive overview of the 30-Day Letter and taking our informative quiz. Engage with the material to better manage your tax-related queries and interactions with the IRS!
