What Is an Audit?
The IRS randomly audits a small percentage of the population. In addition, the IRS randomly audits a reasonably high statistical percentage of those people with AGI above $80,000, and a significantly higher statistical percentage of people within AGI over $100,000. In effect, this means that the higher your adjusted gross income, the significantly higher percentage the chance that the IRS will audit you.
It starts with an IRS audit letter, which will include a list of particular categories that the Revenue Agent is interested in investigating. However, this is only the beginning. They will statistically sample this list in the initial audit letter, and then determine whether these particular items are accurately reported on your income tax return by reviewing your supporting documentation, evidence and information. It's imperative that these statistically selected items are accurate because the Revenue Agent will expand the audit to include different categories and additional tax years if any of the initial items are inaccurate.
It's critical that you collect all of your supporting documentation, receipts, invoices, canceled checks, credit card statements, and cash receipts. We will then organize these materials in a logical format to ensure an excellent presentation to the IRS. The IRS will be looking to see whether you stated income and expenses accurately on your income tax return. The Revenue Agent will also be evaluating the credibility of your work product.
During the audit, the Revenue Agent will be attempting to collect information and documentation that can be used against you at a later time. It's therefore critical that you understand your rights with respect to which documents are discoverable by the IRS, and which documents are not discoverable. There are many reasons for this, including defenses in the Internal Revenue Code, Regulations, and the U.S. Constitution. These defenses must be brought up immediately when the Revenue Agent asks for documents and information that the IRS is not entitled to. Otherwise, your rights to these defenses could be waived.
The Revenue Agent is a regular person, just like you, with a job to do. He or she will do everything that they think they can get away with during the audit. You therefore need to defend your rights as the audit proceeds.
The Benefits of a Tax Attorney during the Auditing Process
It's very important to select the right individual to represent you during the auditing process. The IRS will be coming at you with their best efforts, so it is important to put your best foot forward as well. The individual who represents you will be making a lot of decisions on your behalf.
Less experienced tax preparers and CPAs will typically participate in with the audit process as nothing more than a "go-between." They collect the books from the taxpayer, and present them to the IRS. Because this takes no special skill, you can usually do this yourself. If you did not overstate deductions or understate income and have no tax issues to deal with, this type of representation is the least expensive, as it takes very little time. However, if you have any issues that need to be dealt with, it's imperative that the presentation to the IRS is as complete and forthright as possible.
This taxlawfirm will make all decisions in the auditing case to benefit you, while actively seeking to lower the tax, penalties, and interest owed to the greatest extent allowed by law. We will also advise you on ways to reduce the attorneys fees to the greatest extent possible. We are truly interested in assuring that we have happy clients. It has been our experience that keeping the attorneys fees down is the best way to assure a happy client.
During the audit process, you may find that you have a very combative Revenue Agent. They may ask for documents or evidence that you are not required to provide to them. You will only be able to keep potentially damaging documents and evidence from the IRS during the audit if you know the defenses, as well as the practical strategies for asserting them. This tax law firm knows all of the legitimate defenses in the Internal Revenue Code, Regulations & U.S. Constitution, as well is all of the tricks necessary to represent the client to the best of our ability.
What to Expect from an IRS Audit
The Revenue Agent expects that all of your receipts, invoices, records, and documents are already organized in a logical format for them to audit. We all know that in the real world this is rarely the case. You may no longer possess some of the requested documents. If you don't make a strong, well organized presentation to the IRS, the Revenue Agent will conclude that you are unorganized, and all-important credibility in your work product may be lost. This, in turn, can result in the audit being expanded to include other categories and additional tax years. It's imperative that all of your receipts, invoices, documents, and evidence be organized in a logical fashion so that you can assert that you have complied fully with all the rules and regulations under the code.
Occasionally, the Revenue Agent will be young, aggressive, and/or will exceed their bounds. They will ask for additional information that is above and beyond what is required for the audit. If you comply with these unwarranted demands, the audit can quickly proceed in a direction you do not want it to. The only way to prevent this is to know your rights under the Internal Revenue Code, Regulations & U.S. Constitution.
Reasons for a Tax Audit.
The most common reason that the IRS conducts an audit is because it is required to randomly audit a small percentage of the population. The purpose of these audits is to keep the population honest, because most taxpayers will choose to comply over enduring an audit.
The second most common reason for the IRS to conduct a tax audit is because something in your tax return does not appear reasonable under the circumstances. The IRS processes millions of tax returns annually, and can use information provided in returns to generate average income and expense statistics for all professions. If the amounts on a specific tax return differs significantly them from the average, the Discriminate Function Score that the IRS uses to select returns for audit will increase. The more the amount in your return differ from the average, the greater the likelihood you will be audited. However, this does not mean that you should increase or decrease amounts you report on your tax return in order to stay within the statistical average. You should only include amounts for which you have support.
How Is an IRS Attorney Different from a Tax Specialist?
IRS attorneys are individuals who are employed by the Internal Revenue Service and are also licensed to practice law in the State of California. They represent the IRS in proceedings against CPAs, Enrolled Agents, tax preparers, or taxpayers. This tax law firm employs tax attorneys who represent individuals, corporations, and businesses against the Internal Revenue Service. During the audit process, the IRS will typically be represented by a Revenue Agent. During the appeals process, the IRS will be represented by an Appeals Officer, and during civil or criminal litigation, the IRS will be represented by an IRS attorney.
If someone says they are an IRS attorney, they represent the IRS, not you. Occasionally individuals will say that they are former IRS employees. I have found that individuals who have previously worked for the IRS as either a Revenue Agent, a Revenue Officer, an Appeals Officer, or an IRS Attorney are usually very familiar with what the IRS can do to a taxpayer. They have learned the rules and regulations that can be used to harm the taxpayer by assessing additional tax, penalties, and/or interest. Usually, if they have any understanding about what taxpayers can do against the IRS, they learned about it from tax attorneys such as myself. Former IRS employees tend to be the least aggressive advocates for taxpayers against the Internal Revenue Service. They also tend to be the least knowledgeable regarding rights a taxpayer can assert against the Internal Revenue Service. This is usually because they never learned these things while working for the IRS. They only learned what the IRS can do to taxpayers.
To get a better understanding of your rights as an individual, business, or corporation as they relate to an income tax audit, please feel free to contact our office via phone or email. We would be happy to have a preliminary conversation with you over the phone or to set up a meeting here in our offices to review your specific situation and offer you advice as to your options.
- Representing taxpayers rights since 1982
- Experts in all technical tax rules and regulations.
- Experience with hundreds of tax audits.
- We have fought and won some of the most controversial and litigated audits with the most combative IRS Agents.
- Deeply understand the most current and up-to-date tax laws.