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Thank you for using justanswer. Letter audits are fairly common, and generally fairly easy to deal with. You will need to prorate the mortgage interest by applying Table 1 Instructions . Although I can't use my 1040X (the instructions on letter audits normally states that you may not use a 1040X to make corrections to the letter audit) I do one for myself for informational purposes. so that I can check IRS's figures.
You'll want to find the page of the letter that looks similar to the 1040 X form . After doing your own 1040X, see if your figures agree with theirs. If they do, then you do nothing and let the tax payer pay the additional tax. If they don't agree (and they usually don't. IRS may have adjusted the mortgage interest, but I doubt it. My guess is they just disallowed all of it) you cross off the number in the far right had side that you disagree with (probably the line showing the itemized deductions, tax due, etc) and make the corrections on their form. Do not attach your 1040X,that was just to be able to fill out and correct their letter, but DO attach any worksheets, etc that support your position, along with a new Schedule A showing the correct amount of mortgage interest deduction. On the bottom of the page you will write "see attached Schedule A and worksheets"
You will need to have your client check the box that states "they do not agree with the IRS's figures on the page where it offers them the choice, and write "see attached" on the bottom of the letter.
If the prior year is also under audit, and you have that IRS letter, then I would correct that one in the same manner, but I would mail them separately. Waiting until one is done before you send the other correction won't really matter, and there's also the time limit you have to meet. Since all years stand on their own, this won't be a problem. Be sure to mail these corrections back to the correct address though.
I hope this helps you
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The 1040X I was referring to is I do for informational purposes only so that I can correct their letter. It is how I get the corrected numbers.
If you have a letter audit for a year that you wanted to amend anyway, you may correct it in 1 of 2 ways. Do your 1040X FOR YOURSELF ONLY that includes the credit you wanted to amend for, and when you correct the audit letter, you would take care of both the audit issue and correcting for the neglected credit at the same time by changing the audit letter figures to reflect the credit also. (this is where the 1040X comes in, its how I get the numbers for the corrections to their letter) You would include a note on the bottom stating something to the affect of "corrections include credit xxxx see attached form" and then attach the form itself. This is a 1 step process, and if the original reason the tax payer received the letter audit is pretty simple, then I generally will do both steps at once.
If the letter audit is more complicated, then you may want to wait until the audit itself is satisified, and then you will have to amend the return using IRS's changes in the letter audit.
I hope this helps.
Yes, if you choose to do the amended return after the audit, then you would use the corrected figures.
I hope this helps. If you have further questions or need clarification, please let me know.