The word "AUDIT" is enough to give almost anyone a shiver down their spine. After the initial shock from receiving notice from either the IRS or from the state taxing agency has worn off, what should you do next?
First review the notice to identify what the tax authority is questioning. The majority of "audits" in my experience have been computer generated notices of discrepancies between what the taxpayer reported and what was reported to the taxing authority. This notice is rather intimidating and although it doesn't appear this way, it is asking for additional information to clarify the discrepancy. The notice also calculates an additional tax due if the discrepancy is correct, but that does not mean an amount to be paid if the original filing was correct. So review your tax return and if you used a preparer to assist you, contact that to get assistance in responding to this notice.
Secondly, make sure you fully respond to the notice within the time frame provided. If you are uncomfortable responding, contact a qualified professional for assistance. The notices always have dates that a response is requested by so be sure you meeet those deadlines. If you are to contact someone at the taxing agency, be sure to contact them or have your representative (tax preparer) do that once provided Power of Attorney if necessary. The majority of IRS "audits" are now conducted via mail, so respond in writing and fully explain and address all issues raised on the notice. If you need to amend your tax return, be sure you amend both the Federal and State returns to correct for any oversights. If there is an amount due, try to pay as quickly as possible to avoid accruing additional interest and penalties related to the amendment or correction. If the result is an additional refund to you, you will be entitled to interest as well.
Lastly be prepared to wait. The IRS and tax authorities are overwhelmed with responses to these notices and send out acknowledgement letters that indicate "thank you for sending in your response, we need more time to review and will follow up with you within XX days." So be patient as the tax agency reveiws your response and attempts to resolve the issue.
Sometimes it may take more than one response to get an issue resolved. Again be patient as you work with the representatives at the tax agency to resolve the issue. Generally being polite and respectful with the representative is more appreciated by both the representative and yourself, as the old saying goes - "you can catch more flies with honey than with vinegar."