Articles Posted in Preparing for a Tax Audit

Do I Need a Tax Audit Defense Lawyer?
The IRS conducts tax audits—referred to as examinations—by mail or in-person. Taxpayers are usually selected either randomly, by computer screening or due to a referral or an audit of a business partner or investor. Taxpayers have the option of working with the examiner directly, or with the assistance of a representative such as a tax audit defense lawyer.

Taxpayers who “have nothing to hide” may think that it will be easier to work with the examiner themselves. However, there are several reasons to consider retaining a tax attorney if you are being audited.

First, you should have a trained eye review all the information you give to the IRS. The IRS will request documentation in the form of receipts, bills, loan agreements, canceled checks, or many other types of documents. Before you hand everything over to the IRS, it’s a good idea to have an experienced tax attorney review everything. Some issues may not be easy to spot for a lay person without extensive tax knowledge or experience with IRS tax audits. If you give the IRS information that indicates that you have committed tax fraud or other tax violations, you may end up facing criminal tax charges and giving the IRS valuable evidence that incriminates you.

The Options for Resolving a Disagreement With Your IRS Examiner
After an IRS examiner receives your documentation and makes a decision regarding proposed changes to your return, you have several options. You can sign the letter stating that you agree with the proposed changes, and then decide what payment method you would prefer to use, whether paying in full, applying for an installment agreement, or seeking an Offer in Compromise. If you don’t agree with the proposed changes, you should first try to negotiate further with the IRS examiner.

You may be able to persuade the IRS examiner of their mistake by providing additional documentation. You can also request a telephone conference with the examiner, where you or your tax attorney can explain your arguments.

If neither of these methods are successful, you may request an informal conference with the examiner’s manager. You may instead request that your case is sent to IRS appeals, which has the advantage of being an entirely separate department within the IRS. The appeals officers can evaluate the likelihood that the IRS will win your case if you end up filing a petition in Tax Court, and may decide to settle if it seems probable that you could bring a successful case.

Do I Need a Tax Lawyer If I’m Being Audited
Whether you should consult with a tax lawyer depends on the specific facts relating to your tax audit. However, there are some circumstances where it is vital that you retain the services of a tax lawyer to make strategic decisions and negotiate with the IRS or state tax authority.

Types of Tax Audits

There are many different types of tax audits. You may be facing any of the following types of tax audits:

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It doesn’t necessarily mean you have done anything wrong, but it still is something every taxpayer should be prepared for: notification of an IRS tax audit. Of course the best approach to preparing for a tax audit would be to ensure that your tax filings don’t warrant any undue attention, but that shouldn’t prevent you from taking every deduction to which you are legally entitled. An audit may simply be based on random selection, but that is very rare. The most prudent assumption is that the IRS believes that there may be errors with your return that need to be addressed. If you’ve been selected for a tax audit, here are some of the important steps to take:

  1. Gather All Your Records – Be sure to have all of the pertinent documentation together in one place that will substantiate any deductions or exemptions you claimed on your returns. Generally, the IRS is happy to receive digital copies of records. If you don’t have all your records duplicates can usually be obtained from financial institutions and vendors, but that takes time. Therefore you should get started as soon as you are notified of the tax audit. If you are in business you should review your bank statements, and compare them to your tax returns to make sure you reported all of your income. You should have tax returns for at least the past three years.
  2. Research – Make use of IRS publications that explain the procedure for audits, your rights as a taxpayer, the appeals process and more. Keep in mind though that IRS publications do not always represent all the nuances of the law, and the IRS is not required to follow its own publications.