Auditing is not a new concept. Unfortunately, it’s possible for taxpayers to get an IRS examination letter when they open their mailboxes. One such letter is Letter 6316 from the IRS. I have met with numerous individuals who have received these particular letters in the past few months alone. The IRS issues them as part of its National Research Program, and it very definitely does so. These and other letters must be read carefully by taxpayers in order to understand their rights and obligations with regard to each. Our company has previously provided descriptions of other IRS notices/letters, including You Received an IRS CP518 Notice, Now What?, You Received an IRS CP504 Notice, Now What?, You Received an IRS CP15 Notice (re: Form 3520 Penalty), What Now?, You Received an IRS LT11 Notice (or Letter 1058), Now What?, and You Received an IRS Notice CP2000, Now What? The Letter 6316 is discussed in this article along with the appropriate responses from taxpayers.
What exactly is letter 6316?
The IRS typically sends the Letter 6316 to a taxpayer as part of its National Research Program (or “NRP”). As stated in the first paragraph of the IRS letter, “We’ve selected your federal income tax return for the tax period mentioned above for a compliance research assessment.” Contrary to what a lot of individuals initially believe, the IRS investigation letter is not always the result of mistakes or problems on the taxpayer’s federal income tax return (s).
The IRS claims that in order to make the best use of its limited resources, it needs accurate compliance estimates in order to identify the most significant areas of noncompliance and the appropriate treatments.
The IRS can therefore satisfy these demands with the help of information from NRP exams.
In Notice 1332, the IRS provides more information about NPR inspections:
For a compliance research investigation, your return was chosen at random. Since there is some evidence that the return is erroneous, we often choose returns for general examinations. In order to collect information for use throughout the Service to enhance our tax system, we also choose at random returns for compliance research assessments. We understand that taxpayers who consistently comply with all tax responsibilities shoulder a fair portion of the overall tax burden. Our goal is to study enough tax returns, though, to guarantee that the federal tax system is run fairly and that any problems found in the returns we’ve studied will be fixed.
Your return’s random selection does not imply that it contains errors; rather, it enables the IRS to gather data on how taxpayers fulfill their tax obligations in a way that is statistically valid. This data will assist us in identifying the IRS forms, publications, and tax regulations that can benefit from revisions to increase voluntary compliance. Additionally, it will be applied to help develop programs that will aid in the understanding and observance of tax laws by taxpayers as well as improvements to how the tax laws are enforced. The fairness of the tax system is enhanced by all of this.
Although there might not be any mistakes in your return, if there are, we will let you know and provide you a chance to explain. If you paid more tax than you should have, we’ll issue you a refund plus interest. If any taxes are owed, we will ask you to pay them as well as any legal fines and interest.
Every taxpayer benefits when they pay their fair share of taxes in accordance with the regulations passed by Congress. Regarding the review of your return, we appreciate your cooperation.
The Taxpayer’s Next Steps
A taxpayer should seek legal counsel as quickly as feasible if they get a Letter 6316. An audit conducted “on research” should not deceive a taxpayer. Such audits frequently entail more steps than a “normal” audit. A research audit entails a thorough evaluation of the tax return, unlike a conventional audit when a tax return has been identified for a specific fault or issues. Every item listed on the tax return must be supported by information and evidence provided by the taxpayer. Research audits may also lead to levies of taxes, fines, and interest, despite their name. That instance, for the taxpayer who is chosen for a research examination, an auditor may find that the taxpayer owes additional sums for a variety of reasons, including: a lack of evidence or documentation for costs or deductions; a failure to report certain tax items accurately; or both.
Due Process Rights & Alternatives to Collection
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Taxpayers should also be aware of their rights and available options for collection if modifications to the tax return result in taxes, penalties, or interest being owing to the IRS. Certain methods to collection, like installment contracts and offers in compromise, are available to taxpayers. There can be no levies while these offers and installment contracts are still open. Taxpayers, however, can also ask for (and are entitled to) a hearing. The importance of CDP hearings for taxpayers cannot be overstated. Prior to the imposition of a levy, taxpayers are entitled to a CDP hearing with the IRS Independent Office of Appeals. A “CDP hearing is an opportunity to consider alternatives to enforced collection and provides you to dispute the amount you owe if you have not previously had the opportunity to do so,” according to the IRS.
Conclusion
Depending on the IRS’s random selection process, the Letter 6316 might show up in a taxpayer’s mailbox. The right to respond to these kinds of IRS mailings must be understood by taxpayers. Although an investigation may be started for research purposes, taxpayers may still be subject to a thorough audit of their entire tax returns and suffer tax, penalty, and/or interest charges. In order to decide the best way to react to the IRS, taxpayers who receive a Letter 6316 may think about speaking with a tax professional.
