Receiving a notice from the IRS can be unsettling, especially when it involves a potential audit. One such notice is IRS Letter 566B, which signifies the start of a correspondence audit—a limited review of specific items on a taxpayer’s return. This letter demands attention, not panic. Understanding its purpose, scope, and implications is essential to safeguarding your rights and responding effectively.
Legal Nature of IRS Letter 566B
Letter 566B serves as a formal notification from the IRS that it has initiated a correspondence audit. Unlike field audits, this process occurs entirely by mail. The letter is part of the broader 566 series but stands out because it frequently includes:
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- A preliminary examination report, often in the form of Form 4549 (Income Tax Examination Changes), outlining proposed changes to your tax return.
- A request for supporting documentation to verify the accuracy of items claimed, such as deductions, credits, or reported income.
It is important to note that receiving this letter does not imply wrongdoing or fraud. Many audits are triggered by algorithmic reviews, statistical flags, or missing information. Nevertheless, a timely and complete response is crucial to avoid adverse tax consequences.
Scope of the Audit and Documentation Requirements
Letter 566B clearly states the tax year under review, the items being examined, and the IRS agent assigned to the case. The taxpayer is usually given 30 to 45 days from the date of the letter to respond.
Attachments may include:
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- Form 886A, providing narrative explanations of proposed adjustments.
- Form 4564, which formally requests specific documents.
- Detailed listings of records needed, such as receipts, bank statements, or third-party confirmations.
Respondents must provide organized, relevant, and credible documentation to substantiate the original entries on their tax return. Incomplete or vague responses can be detrimental.
Consequences of Failing to Respond
Failure to respond within the prescribed deadline can result in:
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- Disallowance of deductions or credits.
- Assessment of additional tax liability.
- Retroactive interest and penalties.
- Issuance of a Notice of Deficiency, initiating a 90-day window for filing a petition with the U.S. Tax Court.
Inaction may be interpreted as agreement with the IRS’s proposed changes, which can severely impact the taxpayer’s financial and legal standing.
Taxpayer Rights and Appeals Process
Taxpayers have the right to dispute any proposed changes. This can be done by submitting a written explanation and documentation in support of the original tax position or requesting a conference with the IRS Office of Appeals. The IRS Office of Appeals is an independent administrative forum designed to resolve disputes without litigation.
Importantly, all responses and appeal requests must be made within the deadlines specified in the original letter. Late submissions can severely limit your options for resolution.
Why Understanding Letter 566B Matters
Letter 566B is not merely an administrative formality—it is a gateway into the IRS’s audit and dispute resolution process. For taxpayers, especially those with self-prepared or complex returns, this letter should prompt immediate attention.
We Can Help!
Proper handling of the correspondence audit can lead to preservation of claimed deductions and credits, avoidance of costly tax assessments, and protection of legal rights throughout the IRS examination process.
At JH Tax Law, our team ensures that communication is accurate, deadlines are met, and your procedural rights are fully exercised. If you’ve received IRS Letter 566B, contact our office for a confidential consultation today.