Threat of an IRS Audit or State Tax Audit can justifiably strike fear into the potential audit victim. Business owners, professionals, corporations, partnerships and LLCs have more complicated business transactions than most W-2 wage earners. Fear of tax increases, tax penalties such as negligence penalties, late filing penalties and late payment penalties as well as interest on the tax increase and penalties, is real. Big increases in tax dollars owed and even claims of civil tax fraud are the potential result of a mishandled tax audit.
Do not let the audit start without Legal Representation
- Engage a tax attorney, in addition to your accountant to represent you during the audit process.
- Defer all of the Auditor’s questions to your tax attorney and accountant.
- Gather your accounting records and all tax returns for the years being audited
IRS auditors, known as Internal Revenue Agents, and their criminal counter part, CID (Criminal Investigation Division) agents have extensive training and education. Without the assistance of a qualified tax lawyer before the audit even starts, a taxpayer is starting behind the IRS professionals. The first step is preparation and acquisition of tax law information.
General Information Concerning Audits
You are not going to jail!!!!!
Almost all tax audits are simply about the various levels of government trying to get more money. Every year, usually around the April 15 filing date, the IRS announces a vicious prosecution against nationally (or locally) known high profile individuals. This is part of the IRS enforcement technique to scare taxpayers into “following the rules” imposed by the Treasury. But the fact does not change that few taxpayers are indicted solely for tax matters. An IRS Audit notice is for money not jail!
Do Not Wait to See How the Audit “turns-out” to consult a tax lawyer!
Winning the audit requires the taxpayer to prepare for the audit. Good preparation is more than simply gathering the documents demanded. Identification of the tax law issues and factual areas of contention require the experience and knowledge of a tax attorney. Even if the return was prepared by a CPA or professional accountant, the approach of the tax attorney is to advocate for the taxpayer. Immediately, arrange for an initial consultation to prepare for the audit.
Types of Audits
There are three general types of IRS Audits:
- Mail Audit
- Office Audit
- Field Audit
The Mail Audit is typically if there is a discrepancy within the return (such as a calculation error) or with third party information such as 1099’s. Usually, these audits merely require submitting backup information, documents, and an explanation. Typically, this type of audit requires minimal assistance.
An Office Audit normally is for W-2 wage earners and some small business owners. The taxpayer is required to bring substantiating documentation for the return to the local IRS Office for analysis. The Office Audit typically lasts 1 day or less. Frequently, taxpayers are lulled into believing that the audit is “simple” and “straightforward” and try to not have legal representation. This is how an unwary taxpayer can fall into the traps of the IRS Revenue Agent. Immediately upon receipt of an Office Audit Notice, the taxpayer should consult a tax lawyer.
Field Audits, where one or more IRS Revenue Agents come to a taxpayer’s office are usually reserved for corporations, partnerships and limited liability companies (LLC), although complex sole proprietorship are also subject to field audits. The auditor has to go to the office of the taxpayer because the documentation and legal issues are voluminous and complex. The taxpayer should expect to obtain legal representation as well as further accounting assistance to prepare for the audit.