IRS Audit or Tax Debt: What to Do and When to Hire a Tax Attorney

An IRS letter is unnerving, but most tax problems are fixable if you respond on time. Here's how the common situations work.

First: confirm it's real

The IRS usually starts contact by mail. Scammers call, text and email demanding immediate payment by gift card, wire or crypto. The IRS doesn't do that. If in doubt, contact the IRS directly using the phone number on irs.gov, not one in the message.

If you're audited

• Correspondence audits, handled entirely by mail, are the most common. They ask you to document specific items, like a deduction or income.
• Office and field audits are in person and broader.

What to do: read the letter carefully, note the deadline, gather records for only the items requested, and respond completely and on time. You can ask for more time. You have the right to representation, and you can disagree with the result and appeal, and in many cases go to Tax Court before paying.

If you owe back taxes

1. File every missing return, even if you can't pay. Penalties for not filing are usually larger than for not paying.
2. Look at your payment options:
3. Short-term extension to pay in full.
4. Installment agreement (payment plan), often available online for smaller balances.
5. Offer in compromise, settling for less than you owe if you can't realistically pay in full. It's real, but the IRS accepts far fewer than the TV ads suggest.
6. Currently not collectible status if paying would cause financial hardship. Collection pauses, but interest continues.
7. Penalty abatement, sometimes available for first-time or reasonable-cause situations.
8. Watch for collection notices. Before levying wages or bank accounts, the IRS must send a final notice of intent to levy, which gives you the right to a Collection Due Process hearing if you request it in time.

Tax attorney, CPA or enrolled agent?

• CPAs and enrolled agents can represent you before the IRS in audits, collections and appeals, and are often the most cost-effective choice.
• A tax attorney is the better choice when there's possible criminal exposure (unreported income, fraud), a case headed to Tax Court, complex disputes, or when you need attorney-client privilege.

Be wary of firms that promise to settle your debt "for pennies on the dollar" for a large upfront fee.

The Taxpayer Advocate Service, an independent office within the IRS, can help if you're facing hardship or your case is stuck.

Find a tax attorney near you.

This guide is general information, not legal or tax advice.