Audit Protection

📘 Module 7: Audit Protection & IRS Letters

How to Keep Clients Safe, Calm, and IRS-Compliant

👋 Welcome to Module 7!

In this module, you’ll learn what to do when the IRS sends a letter, how to protect your clients from audits, and how to handle mistakes without panic.

Most new tax preparers get nervous when they hear “audit,” but it’s just the IRS asking for proof, clarification, or correction. Your job is to help your client respond the right way.

📬 Why the IRS Sends Letters

The IRS sends letters to:

  • Ask for more info (income, dependents, ID)
  • Say something doesn’t match (ex: W-2 or SSN error)
  • Tell your client they owe more or will get less refund
  • Request proof (child lived with them, school records, etc.)
  • Start an audit (full review of their return)

The IRS does not call, text, or email about issues first. It always starts with a letter in the mail.

🔎 What Is an Audit?

An audit is when the IRS reviews a tax return to make sure the information is correct.

There are 3 types of audits:

Type

What Happens

Mail Audit

Client mails in documents (most common)

Office Audit

Client meets with the IRS in person

Field Audit

IRS agent visits client’s home or business (rare)

🚩 Common Reasons People Get Audited

  1. Claiming kids that don’t live with them
  2. Reporting fake or wrong income
  3. Unusual refund amounts (especially with low income)
  4. Not reporting 1099 income
  5. Using the wrong filing status
  6. Too many business deductions for a small business
  7. Math errors or missing forms

📁 Audit-Proofing a Return

Before you hit “submit,” ask yourself:

  • Do the names and Social Security numbers match the cards?
  • Did you include all income — W-2s, 1099s, unemployment, etc.?
  • Are the kids really the taxpayer’s dependents (lived with them 6+ months)?
  • Do you have documentation in case the IRS asks later?

💡The best defense is a clean return.

🛡️ What to Do If a Client Gets a Letter

Step 1: Read the letter carefully

  • What is the IRS asking for?
  • What tax year?
  • Is there a deadline to respond?

Step 2: Stay calm

  • Most letters are not audits
  • Don’t panic the client — explain it clearly

Step 3: Respond properly

  • Help gather any documents requested
  • Write a short letter if needed to explain
  • Include a copy of the IRS letter when replying
  • Mail to the IRS address on the letter OR call if a number is provided

Step 4: Keep records

  • Make copies of everything you send
  • Keep proof of when you mailed or faxed it

⚠️ Don’t Ever:

  • Ignore IRS letters
  • Tell a client to lie or “just send anything”
  • File the same child for multiple people
  • File a return you know is incorrect — even if the client asks

🧠 Real Client Example

Client: Tasha filed Head of Household and claimed her 2 nieces. The IRS sent a letter asking for proof that the kids lived with her.

As her tax pro, you:

  1. Calmly explain what the letter means
  2. Help her gather school records or doctor letters with her address
  3. Write a simple response letter (optional)
  4. Copy everything and send it by certified mail
  5. Follow up with Tasha in 30 days

✅ Module 7 Activity

Scenario:

Client: David

  • Claimed 3 kids, got a $9,400 refund
  • Just got an IRS letter saying one child was already claimed
  • He’s confused and upset

Instructions for students:

  1. What should you do first?
  2. What documents would help David prove he can claim the child?
  3. How would you explain the letter to him?
  4. Should he ignore the letter and wait for the IRS to call?

📝 Module 7 Quiz

1. How does the IRS usually contact people first?
A) Email
B) Phone call
C) Text
D) Mailed letter

2. Which of these is NOT a reason for an audit?
A) Claiming a child who lived with the client
B) Unreported 1099 income
C) Filing on time
D) Extremely large refund

3. What’s the best thing to do when a client gets a letter?
A) File another return
B) Ignore it
C) Read it, gather documents, and respond
D) Send fake papers

4. Which of the following could help prove a child lived with a client?
A) The child's TikTok account
B) School records with address
C) A picture of the child
D) A notarized letter from a friend

5. True or False: The IRS will call first before sending a letter.
A) True
B) False

✅ Answer Key:

  1. D
  2. C
  3. C
  4. B
  5. B