Letter 3851B: What to Expect During an IRS Audit
Summary:
IRS Letter 3851B informs employers that their employment tax return has been selected for audit under the National Research Program (NRP). This audit is part of an IRS initiative to measure compliance with employment tax regulations and identify contributors to the tax gap. Receiving this letter can be concerning, but understanding its purpose and taking the right steps can make the process smoother. This guide will walk you through what Letter 3851B means, its implications, and how to respond effectively.
Dealing with correspondence from the IRS can be nerve-wracking, especially when it concerns an audit. IRS Letter 3851B is sent to employers whose employment tax returns have been selected for examination under the National Research Program (NRP). While an audit can seem daunting, this letter doesn’t necessarily indicate wrongdoing. The NRP aims to collect data to improve tax compliance. In this article, we’ll break down everything you need to know about Letter 3851B, including its purpose, how to respond, and what to expect during the audit process.
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What is IRS Letter 3851B?
IRS Letter 3851B is an official notice that informs employers their employment tax return has been chosen for an audit under the National Research Program (NRP). The NRP is a data-gathering initiative designed to assess compliance with employment tax laws and understand issues contributing to the tax gap. The letter outlines the scope of the audit, specifies the records required, and provides instructions on how to proceed.
Why was your return selected?
Tax returns are chosen for NRP audits based on a random selection process, not because of suspected errors or fraud. The goal is to create a representative sample to identify trends, improve IRS systems, and refine tax policies. Key areas of focus often include:
– Worker classification (independent contractor vs. employee).
– Fringe benefits reporting and taxation.
– Accuracy of information reporting, such as Forms 1099 and W-2.
– Reasonable officer compensation for corporate officers.
– Worker classification (independent contractor vs. employee).
– Fringe benefits reporting and taxation.
– Accuracy of information reporting, such as Forms 1099 and W-2.
– Reasonable officer compensation for corporate officers.
How does it differ from other IRS audits?
Unlike standard audits, NRP audits do not target specific taxpayers due to suspicion of noncompliance. Instead, they aim to evaluate a broad range of taxpayers to analyze trends and improve tax law enforcement. While the process is thorough, it’s intended to benefit taxpayers and the tax system as a whole.
Pro Tip
Set up IRS account alerts online to get real-time notifications on any changes to your tax return or account. This helps you stay updated on adjustments and due dates.
How the audit affects you
Receiving IRS Letter 3851B signals that your business will undergo a detailed review of its employment tax practices. This can affect your business in several ways:
Operational disruption
An audit can require significant time and effort from you and your team, especially when gathering the necessary documents and meeting with IRS agents. However, responding promptly can minimize delays and disruptions.
Financial implications
If discrepancies are found during the audit, the IRS may assess additional taxes, penalties, or interest. Accurate record-keeping and a clear understanding of tax laws can mitigate these risks.
Reputational concerns
While audits under the NRP are not public, businesses often worry about how the process might reflect on their operations. Maintaining compliance and cooperating with the IRS can demonstrate professionalism and integrity.
Pro Tip
Use a dedicated folder to organize all audit-related correspondence and documentation. This makes it easier to provide accurate and timely responses during the process.
What to do when you receive IRS Letter 3851B
The first step in dealing with IRS Letter 3851B is to remain calm and organized. Here’s a step-by-step guide to help you respond effectively:
1. Review the letter carefully
Understand the scope of the audit and the specific areas the IRS intends to review. The letter will detail the records you need to provide and any deadlines for submission.
2. Gather necessary documentation
Compile all employment tax-related records for the year under audit, including:
– Payroll records.
– Forms 941, 940, W-2, and 1099.
– Worker classification agreements or contracts.
– Records of fringe benefits provided to employees.
– Payroll records.
– Forms 941, 940, W-2, and 1099.
– Worker classification agreements or contracts.
– Records of fringe benefits provided to employees.
3. Seek professional assistance
Engaging a tax professional, such as a CPA or tax attorney, can help you navigate the audit process. They can ensure your records are complete, represent you during the audit, and address any technical issues that arise.
4. Respond promptly
Adhere to the deadlines specified in the letter. Late or incomplete responses can lead to additional scrutiny or penalties.
Pro Tip
Consult a tax professional as soon as you receive IRS Letter 3851B. Their expertise can save you time and ensure that you avoid costly errors during the audit.
How to respond to IRS Letter 3851B
Steps to prepare for the audit
1. Organize your records: Start by ensuring all requested documents are accurate and easy to access. Use electronic and hard copies to avoid loss of information.
2. Identify key personnel: Determine who in your organization will assist with the audit, such as payroll managers or HR representatives.
3. Communicate with the IRS: Contact the agent assigned to your audit if you have questions about the requested documents or the process.
2. Identify key personnel: Determine who in your organization will assist with the audit, such as payroll managers or HR representatives.
3. Communicate with the IRS: Contact the agent assigned to your audit if you have questions about the requested documents or the process.
During the audit
– Be transparent: Provide only the information requested, but ensure it’s complete and accurate.
– Stay professional: Answer questions clearly and concisely, and avoid unnecessary commentary.
– Take notes: Document all interactions with IRS agents for your records.
– Stay professional: Answer questions clearly and concisely, and avoid unnecessary commentary.
– Take notes: Document all interactions with IRS agents for your records.
After the audit
Once the audit concludes, the IRS will issue a report outlining their findings. If no issues are identified, the audit will close without changes. If adjustments are proposed, you’ll have the opportunity to accept or contest them.
Further support options
If you need additional help responding to IRS Letter 3851B, consider these resources:
– IRS Website: Visit [irs.gov](https://www.irs.gov) for detailed guidance on employment tax compliance.
– Taxpayer Advocate Service (TAS): TAS offers free assistance to taxpayers experiencing difficulties with the IRS.
– Certified tax professionals: Hiring a CPA or tax attorney can simplify the process and ensure compliance.
– IRS Website: Visit [irs.gov](https://www.irs.gov) for detailed guidance on employment tax compliance.
– Taxpayer Advocate Service (TAS): TAS offers free assistance to taxpayers experiencing difficulties with the IRS.
– Certified tax professionals: Hiring a CPA or tax attorney can simplify the process and ensure compliance.
Potential consequences of not responding
Ignoring IRS Letter 3851B can result in serious repercussions, including:
– Assessment of penalties and interest.
– Potential legal action.
– Increased scrutiny of future tax filings.
– Assessment of penalties and interest.
– Potential legal action.
– Increased scrutiny of future tax filings.
To avoid these outcomes, act promptly and seek professional guidance if necessary.
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Frequently asked questions
What documents should I prepare for the audit?
When responding to IRS Letter 3851B, gather all employment tax-related records for the audit year, including Forms 941, 940, W-2, 1099, payroll records, and contracts for independent contractors. Also, include evidence of fringe benefits and documentation of officer compensation, if applicable.
How long does the audit process take?
The length of the audit depends on the complexity of your business records and the scope of the examination. Typically, audits can take a few weeks to several months. Prompt responses and organized documentation can help speed up the process.
Can I dispute the findings of the audit?
Yes, if you disagree with the IRS’s conclusions, you can appeal the findings. This process involves submitting additional documentation or requesting a review by the IRS Office of Appeals. Working with a tax professional during this stage is highly recommended.
What happens if the audit reveals noncompliance?
If the IRS identifies discrepancies, you may be required to pay additional taxes, interest, or penalties. Depending on the nature of the noncompliance, the IRS may also require corrective actions for future filings. However, most issues can be resolved amicably with proper documentation and cooperation.
How can I prevent future audits?
While there’s no guaranteed way to avoid future audits, maintaining accurate and thorough records, classifying workers correctly, and ensuring compliance with all tax laws significantly reduce the chances of being selected for another audit. Regular consultations with a tax professional can help keep your business compliant.
Need help understanding other IRS letters and notices? Visit our comprehensive guide to IRS Letters and Notices or search for the document you received in the table below.
| CP01 | The IRS verified your claim of identity theft and will monitor your account. |
| CP01H | The IRS received a tax return with a social security number that belongs to a dead person. |
| CP02H | Money is due on an amended return based on a grant received due to Hurricane Katrina, Rita, or Wilma. |
| CP03C | You received the First-Time Homebuyer Credit for a house you purchased. |
| CP04 | You may be eligible for tax deferment because either you or a spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice. |
| CP08 | You may be entitled to additional money due to the Additional Child Tax Credit. |
| CP10 | Your tax return changed due to a miscalculation, and the refund you wanted to apply to an estimated tax payment has changed. |
| CP10A | Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment has changed. |
| CP11 | You owe money because the IRS amended your return due to a miscalculation. |
| CP11A | Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment also changed. |
| CP11M | Your tax return changed due to a miscalculation of the Making Work Pay and Government Retiree Credit, and the refund you wanted to apply to an estimated tax payment has changed. |
| CP12 | You are due a bigger refund because the IRS corrected one or more mistakes on your tax return. |
| CP12A | The IRS made changes to correct the Earned Income Credit (EIC) claimed on your tax return. |
| CP12E or CP12F | The IRS corrected a miscalculation on your return. |
| CP12M | The IRS made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return. |
| CP12R | The IRS made changes to the computation of the Rebate Recovery Credit on your return. |
| CP13 | The IRS made changes to your return due to a miscalculation. There is no refund or amount due. Your balance is zero. |
| CP13A | The IRS made changes to your return due to a miscalculation of the Earned Income Credit. There is no refund or amount due. Your balance is zero. |
| CP13M | The IRS made changes to your return due to a miscalculation of the Making Work Pay credit or the Government Retiree Credit. There is no refund or amount due. Your balance is zero. |
| CP13R | The IRS made changes to your return due to a miscalculation of the Recovery Rebate Credit. There is no refund or amount due. Your balance is zero. |
| CP14 | You owe money on unpaid taxes. |
| CP16 | The IRS made changes to your return due to a miscalculation. The refund you were due was applied to other tax debts. |
| CP21A | You owe money due to the changes you requested that the IRS make on your tax returns. |
| CP21B | You are due a refund due to the changes you requested that the IRS make on your tax returns. The money should arrive within 2 to 3 weeks. |
| CP21C | The IRS made the requested changes to your tax return. You will not receive a refund, and there is no tax due. Your balance is zero. |
| CP21E | As a result of your recent audit, the IRS made changes to your tax return, and you owe money as a result of those changes. |
| CP21I | The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes. |
| CP22A | The IRS made the changes you requested, and you owe money as a result. |
| CP22E | As a result of your recent audit, the IRS changed your tax return, and you now owe money. |
| CP22I | The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes. |
| CP23 | The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You owe taxes due to these changes. |
| CP24 | The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes. |
| CP24E | The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes. |
| CP25 | The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You are not due a refund, nor do you owe any money. Your balance is zero. |
| CP31 | You need to update your address because your refund check was returned to the IRS. |
| CP45 | The IRS was unable to apply your overpayment to your estimated tax as you requested. |
| CP49 | The IRS used all or part of your refund to pay a tax debt. |
| CP53 | Your refund check will be sent by mail because the IRS can’t provide your refund through direct deposit. |
| CP57 | The bank declined your payment, so the IRS was unable to draft funds from your bank account. |
| CP71 | A reminder of the amount you owe in tax, penalty, and interest. |
| CP71A | A reminder of the amount you owe in tax, penalty, and interest. |
| CP71C | A reminder of the amount you owe in tax, penalty, and interest. |
| CP71D | A reminder of the amount you owe in tax, penalty, and interest. |
| CP88 | The IRS is holding your refund because you haven't filed one or more tax returns, and it believes you will owe tax. |
| CP90 | The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy in a Collection Due Process hearing. |
| CP91 | The IRS will levy up to 15% of your social security benefits for unpaid taxes. |
| CP120 | The IRS needs documentation of your tax-exempt status. |
| CP120A | Your organization’s tax-exempt status has been revoked because it failed to file a Form 990 series return for three consecutive years. |
| CP130 | You may no longer need to pay the Alternative Minimum Tax (AMT) because your tax return filing requirements changed. |
| CP152 | The IRS received your return. |
| CP153 | The IRS will send your refund by mail because your direct deposit did not go through. |
| CP161 | You have an unpaid balance due to the IRS. |
| CP166 | Your monthly payment to the IRS did not go through due to insufficient funds in your bank account. |
| CP178 | You may no longer owe excise tax because your tax return filing requirements changed. |
| CP231 | You need to update your address because your refund was returned to the IRS. |
| CP259 | You did not file the business tax return identified in the notice. |
| CP259A | You should have filed these forms but did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax, or Form 990-N (e-Postcard). |
| CP259B | The IRS requires you to file these forms but did not – Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation. |
| CP259C | The IRS believes that you are a private foundation, but did not file the required Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation. |
| CP259D | You must file this form, but you did not – Form 990-T, Exempt Organization Business Income Tax Return. |
| CP259E | You should have filed this form, but you did not – Form 990-N (e-Postcard) or Form 990/990-EZ, Return of Organization Exempt From Income Tax. |
| CP259F | The IRS requires you to file this form but did not – Form 5227, Split-Interest Trust Information Return. |
| CP259G | The IRS requires you to file this form, but you didn’t – Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations. |
| CP259H | As a tax-exempt political organization, you must file this form, but you did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax. |
| CP276A | You submitted your tax liability schedule incorrectly. The IRS typically charges a Federal Tax Deposit (FTD) penalty for this but did not this time. |
| CP276B | The IRS did not receive the correct amount of tax deposits. It normally charges a Federal Tax Deposit (FTD) penalty but did not this time. |
| CP297 | The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing. |
| CP297A | The IRS has levied your assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing. |
| CP298 | The IRS notifying you of its intent to levy up to 15% of your social security benefits for unpaid taxes. |
| CP501 | You have a balance due on one of your tax accounts. |
| CP503 | You have an unpaid balance on one of your accounts, and the IRS has not heard from you. |
| CP504 | You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy your state income tax refund to apply it to the amount you owe. |
| CP504B | You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy certain property or rights to property to apply it to the amount you owe. |
| CP521 | A reminder that you have an installment agreement payment due. |
| CP523 | You have defaulted on your payment agreement. Therefore the IRS is terminating the agreement and will levy your assets. |
| CP601 | Usted tiene un saldo pendiente de pago (dinero que le debe al IRS) en una de sus cuentas contributivas. |
| CP603 | No hemos recibido respuesta de parte de usted y todavía tiene un saldo sin pagar en una de sus cuentas contributivas. |
| CP604 | Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará cualquier reembolso de impuestos estatales al que tenga derecho y aplicarlo al pago de su deuda. |
| CP604B | Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará ciertas propiedades o derechos de propiedad y lo aplicará al pago de su deuda. |
| CP621 | Este aviso es para notificarle que usted tiene un plan de pagos a plazos vencido. Por favor, envíe el pago inmediatamente. |
| CP623 | Este aviso es para informarle nuestra intención de cancelar su plan de pagos a plazos y confiscar (embargar) sus bienes. Usted incumplió en su acuerdo. |
| CP711 | Nosotros realizamos cambios a su planilla debido a que entendemos que hubo un cálculo erróneo. Como resultado de estos cambios, usted adeuda dinero por sus contribuciones. |
| CP721 | Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos. |
| CP722 | Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos. |
| CP771 | Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses. |
| CP772 | Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses. |
| CP773 | Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses. |
| CP774 | Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses. |
| CP959 | Usted no radicó su planilla de contribución de negocios identificada en este aviso. |
| CP2000 | The income or payment information on file doesn’t match your tax return. The discrepancy may result in an increase or decrease in your tax due. |
| CP3219A | The IRS has received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax. |
| CP3219N | The IRS didn’t receive your tax return, so it calculated your return based on the information received from employers, financial institutions, and others. If you want to challenge the proposed tax, you have 90 days from the date of this notice. If you are outside the country, you have 150 days. |
| Letter 0012C | The IRS needs additional information to process your tax return. |
| Letter 0484C | The IRS wants a completed |
| Letter 0525 | Updates you on proposed changes after an IRS examination. Any changes are explained and details the refund due or taxes owed. |
| Letter 531 | IRS Notice of Deficiency. The information the IRS received about you was different from what you reported on your return. |
| Letter 0668D(LP 68) | The IRS released their levy. |
| Letter 0549C | Your tax bill was paid. |
| Letter 0681C | The IRS accepted your payment proposal. However, this is not a formal Installment Agreement. |
| Letter 0757C | You did not adhere to the terms of your Installment Agreement. |
| Letter LT 11 | The IRS plans to seize your property or rights to property. |
| Letter 1058 | The IRS has not received your payment. It plans to seize your property or rights to property. |
| Letter 1615 (LT 18) | You must respond to the IRS within 10 days of this notice regarding past due tax returns. |
| Letter 1737 (LT 27) | Complete and sign Form 433F, Collection Information Statement. |
| Letter 1961C | Your application for a Direct Debit Installment Agreement was declined. It explains why and what you need to do to qualify. |
| Letter 1962C | Your application for a |
| Letter 2050 (LT 16) | The IRS is trying to collect unpaid taxes from you from returns that have been filed or from returns that have not been filed. |
| Letter 2257C | The IRS is providing the payoff amount that you requested. |
| Letter 226-J | An IRS letter to large employers notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP). |
| Letter 2271C | A request for an Installment Agreement has been approved. It explains the fees and how to qualify for a Low Income Fee Reduction. The letter may also request missing information. |
| Letter 2272C | An IRS letter explaining why your request to pay the balance due in installments was declined. |
| Letter 2273C | A confirmation letter of your request to pay the balance due in installments. It contained the amount to pay, fees charged, and where to send payment. Instructions on how to apply for the Low Income Fee Reduction included. |
| Letter 2318C | A response to a request to pay taxes due to payroll deductions. It also explains the fees that are charged. |
| Letter 2357C | The IRS is admitting that it did not send you the balance due notices that it should have. |
| Letter 2603C | The IRS accepted your installment agreement. The IRS will file a Notice of Federal Tax Lien on your personal property. |
| Letter 2604C | The IRS has accepted your request for installment payments. This IRS letter provides the monthly payment, the address where to send it, and the fees charged. The letter also provides instructions on how to apply for the Low Income Fee Reduction. |
| Letter 2761C | The IRS is requesting your combat zone service dates to ensure that it provides you with the special provisions and protection of the combat zone deferment. Copies of military orders or other documentation to support your time served may be requested. Civilians working in support of the Armed Forces may be required to provide a Letter of Authorization or a letter from their employer. |
| Letter 2789C | An annual reminder notice, as required by law, of the balance due to the IRS. It explains that penalties and interest continue to accrue until the balance is fully paid. |
| Letter 2840C | Confirms your Installment Agreement request and includes the payment amount and due date. This IRS letter explains the fees charged for paying monthly and explains how to apply for the Low Income Fee Reduction (if you qualify). |
| Letter 3030C | Provides an explanation of the tax, penalty, and interest still due on your account. |
| Letter 3127C | A confirmation of your request to make a change to your Installment Agreement. This IRS letter explains the fees for the change. Changes can be to the payment amount or due date, or it can include additional liabilities. |
| Letter 3174 | A reminder of taxes due after the IRS has sent a Notice of Intent to Levy. |
| Letter 3217C | The IRS has accepted your request to pay the balance in installments. This IRS letter provides your payment amount, the due date, and fees charged. The letter also provides instructions on applying for the Low Income Fee Reduction (if you qualify). |
| Letter 3228 (LT 39) | A request to pay the balance due within 10 days using the envelope provided. |
| Letter 3500 | The IRS has received your documents, and it needs additional time to review them. |
| Letter 3572 | Your Federal Income Tax Return has been selected for examination. The IRS auditor requests that you call to schedule an audit appointment. |
| Letter 4883C | The IRS received your federal income tax return but needs more information to verify your identity in order to process your tax return accurately. |
| Letter 4903 (LT 26) | You must file your tax returns immediately. The IRS has previously contacted you, but it did not receive a response. |
| Letter LP 47 | The IRS is trying to locate the person identified in the letter and is requesting that you provide their new address. |
| Letter LP 59 | The IRS has not received a response to the notice of levy it previously sent. |
| Audit Letter 2205 | The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or the taxpayer’s home, place of business, or accountant’s office (field audit). |
| Letter 915 | You recently underwent an audit, and the IRS informs you that you now owe taxes. |
Key takeaways
- IRS Letter 3851B informs employers their tax return has been selected for an NRP audit.
- NRP audits focus on compliance, not suspicion of wrongdoing.
- Respond promptly to the letter by gathering requested documents and seeking professional assistance.
- Failure to respond can result in penalties, interest, or legal action.
- Cooperating with the IRS ensures a smoother audit process.
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