We Help With IRS Audits & Appeals
IRS audits are intended to verify that taxpayers have correctly reported their tax obligations.
IRS agents are supposed to look for substantial compliance; however, not all IRS auditors follow this policy.
The type of audit varies based on the size and complexity of the potential tax issues and the taxpayer.
Types of IRS Audits
There are several different types of audits, including correspondence audits, office audits, field audits, and large case audits. We’ll group these into correspondence audits and field and large case audits for this discussion.
Correspondence and office audits typically focus on itemized deductions for taxes, interest, charitable contributions, and medical expenses that were deducted. The IRS conducts these audits from several different service centers located throughout the U.S. You can read more about the IRS and its structure here.
Field and large case audits focus on business income and expenses and are usually conducted at the taxpayer’s office.
The IRS Audit Process
Most audits start with a letter from the IRS asking the taxpayer to contact the IRS to schedule an opening conference.
The audit then focuses on information gathering. You can read more about the IRS’s information gathering powers here.
Correspondence and office audits may not include an opening conference–so the IRS may skip straight to asking for specific information or answers. In some cases, the IRS may simply issue closing reports without conducting a full audit in these smaller cases–leaving it up to the taxpayer to note any disagreement with the IRS’s findings.
Managing the IRS Audit
There are a number of legal, procedural, policy, and other requirements that must be followed by the IRS and the taxpayer during the course of the audit. It is imperative that the taxpayer follow and/or enforce these rules or, as a matter of strategy, not follow or enforce some of the rules.
Most audits focus on large, unique, or questionable items reported on the tax return or items that are missing from the return. This usually includes checking to make sure you didn’t understate your taxable income.
In some cases, the audit may even be limited to a predetermined issue or issues or type of tax (such as withholding, excise, employment, estate and gift taxes). Here are some general tips for preparing for an IRS audit.
The IRS process will likely drag out for some time. In fact, the IRS will likely be so slow that it will have to ask you to sign a waiver to extend the time limit for the IRS to audit. It may even ask you to do this for several consecutive periods.
Closing the IRS Audit
The IRS audit concludes with the issuance of a revenue agent’s report (with a 30-day or 90-day letter) or a no change letter (or, in the case of a refund claim that is being audited, a claim allowance, disallowance, or partial disallowance letter).
The IRS may ask you to sign a waiver agreeing to its proposed adjustments or determination. You should be very wary of signing these waivers without first discussing the matter with a tax attorney. There have been instances where taxpayers did not know or understand what they were singing and they ended up losing their rights.
The IRS 30-day letter generally affords the taxpayer with administrative appeal rights. The IRS 90-day letter requires the taxpayer to file a tax court petition, at which time the IRS will normally forward the case to the IRS Office of Appeals for consideration.
The good news is that the IRS rarely comes back and audits taxpayers after it has closed the audit. But there are instances when it does. There is one reported case where the IRS audited the taxpayer five times in a ten year period. Ouch.
If the IRS audit proposes additional tax or penalties, the taxpayer will often have the ability to appeal the decision. The IRS Office of Appeals handles these cases.
The IRS Office of Appeals is focused on settling cases. A very high percentage of tax disputes are settled in appeals.
But it is rare for appeals to allow everything the taxpayer is asking for.
Appeals considers the merits of cases through the lens of the hazards of litigation. This is best described as the odds the taxpayer would prevail if they were to go on and litigate the case. Appeals officers are tasked with coming up with a settlement range based on the hazards of litigation. This is usually somewhere between 20% to 80% of the IRS auditor’s adjustments.
Get Help With Your IRS Audit
There is no substitute for experience in conducting and managing audits. This is not an area for novices or others who do not handle audits regularly.
An experienced tax attorney who regularly handles audits should be engaged to handle the audit. We help taxpayers with IRS audits.