IRS Revenue Agents – auditors, and Revenue Officers- collectors are your adversary. They are from the government and they are not here to help! First, if the IRS comes knocking at the door, do not let them in! Read Confronting the IRS for initial help.
IRS audits can result in big tax increases, tax penalties such as negligence penalties, late filing penalties and late payment penalties. The Internal Revenue Service then adds on interest on the tax increase and penalties! Big increases in tax dollars owed and even claims of civil tax fraud are the potential result of a mishandled tax audit.
What are the steps in winning the audit:
- Engage a tax attorney, in addition to your accountant or CPA to represent you during the audit process. 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.
- Defer all of the Auditor’s questions to your tax attorney and accountant. Many of the Revenue Agent’s questions are designed to trick you into revealing unnecessary details that can cost you big dollars. Let your tax lawyer protect you by filtering the questions and answers.
- Gather your accounting records and all tax returns for the years being audited. If your tax attorney can preview the business and accounting records in advance of the audit, it is easier to formulate a successful challenge of the IRS’ audit.
After the Audit
Dealing with the IRS
If you are represented by a tax attorney, typically the Revenue Agent will give a draft of the Audit Report to the Attorney for comment. Negotiating with the examiner is the least expensive and quickest route to resolving the matter. This is the opportunity to straighten out factual issues. Unfortunately, the auditor’s job is to increase your taxes. Therefore the Revenue Agent has little discretion to decide more complex issues in your favor.
Next, you will receive an Audit Determination Letter, which is also known as the “30 day letter.” After you receive an audit report and proposed adjustments, your tax attorney has 30 days to protest it within the IRS. A Protest Letter is a factual and legal brief describing the errors made by the auditor. The Protest Letter frames your entire argument. The matter is sent to the IRS Appeals Office. At Appeals, they have the right to review the facts, and compromise the case based upon the hazards of going to court. Appeals Officers have more experience than auditors and typically want to weigh the strengths of the taxpayer’s arguments and negotiate a deal to avoid court. Internal Revenue Service Appeals Officers frequently claim the IRS’ position is better than it is. If the case is Unagreed, you will receive a “Notice of Deficiency” termed a “90 day letter.”
Fighting Tax Matters in Court
You have 3 courts to fight the IRS. The Notice of Deficiency is your “ticket” to the US Tax Court. The Tax Court is the only court where you can fight your case without first paying the tax. The other choices are the US Court of Federal Claims and US District Court. Both of these courts require payment of the taxes, interest and penalties as well as filing a special Claim for Refund with the IRS. Your tax lawyer can explain the advantages of each court.
Stopping IRS Collections
The costliest mistake you can make is not immediately hiring an expert tax attorney to protect you from the IRS.
Your tax attorney will stop the IRS collection tricks and the constant calls and pressure tactics. In addition, all of the skills and techniques for protecting you and your assets will be applied for your benefit.