IRS Audits, Examinations and Collections - Often the IRS will begin its investigation into your personal or business tax returns by way of conducting an examination or Audit. This usually means that certain items or patterns within your returns, most frequently on your Schedule C, caught the attention of the IRS. It is always best to seek professional help from an attorney at this stage rather than allow things to escalate to the Collections phase. At the audit and/or examination phase, Bell Law will assist you in dealing with the IRS Revenue Agent assigned to your case and work with you in attempting to resolve your tax issues.
The typical IRS Audit involves a face-to-face meeting with an IRS Auditor. Approximately one-third (1/3) of IRS Tax Audits originate in the form of letters asking for explanations of various tax items on a tax return or supporting documentation. If you receive a Tax Audit letter from the IRS, you should examine your records to determine the nature and extent of the tax audit issue(s). While it is possible that the IRs will want to audit the entire tax return for a given year or years, most frequently the IRS will focus on a certain portion or schedule of certain tax years. Most frequently, the IRS seems to question deductions taken in the form of expenses claimed on a Schedule C. Examples of such expenses include but are not limited to the travel, meals and/or entertainment, automobile or "other expenses."
If the issue concerns supporting documentation or alleged lack thereof, then you should send the IRS copies of any and all appropriate documents. Do not send originals to the IRS as there is no guarantee that the IRS will return any documents to you. Moreover, originals might get lost in the mail or at the IRS offices. If the tax notice questions whether you are entitled to a tax deduction or questions a tax position taken on the tax return, you should consult your tax advisor before responding to and/or submitting any documentation to the IRS. While a quick, satisfactory explanation can end the matter swiftly, there is no guarantee. Regardless, it is important to the IRS in writing whenever possible.
If only a portion of a tax return is to be audited by the IRS, you should bring only those tax records relevant to that portion of the tax return being audited by the IRS. All tax return information for a given year will be requested in a full tax audit.
IRS tax audits are often applicable where businesses claim large losses over a period of several years, raising the question as to how the owner made a living and why the owner kept the business going during that time. In such situations, the IRS can and will frequently take the position that the taxpayer did not really engage in a business, but rather a "hobby," and, in turn, will disallow most or all of the expenses claimed by the taxpayer relative to the business.
Preparing for an Audit
There are many things that you could and probably should do in order to prepare for a tax audit, including but not limited to:
- Consulting with a tax attorney or Certified Public Accountant (CPA) to identify and attempt to fully comprehend the issues the IRS is focusing on;
- Thoroughly review IRS Publication 1, the Taxpayers' Bill of Rights, which is supposed to come with the notice(s) that you should have received from the IRS regarding the audit or examination;
- Research the pertinent issues on the IRS' website, www.irs.gov
- Discuss the situation with the professional tax preparer that helped you with the return(s) in question and decide whether he or she and/or an attorney should be present with you in the audit. It is nearly always advised to have such a professional present with you.
- Do not hesitate to ask for an extension of time for the audit if you need more time to gather your records.
During the Audit
Many lawyers will advise having a lawyer or CPA represent you during an audit or examination rather than going through it without representation. If you're going to be present during the audit:
- Don't volunteer information of any type without the prior authorization of your attorney or CPA;
- Answers questions truthfully and as concisely as possible;
- Don't lie;
- If you sense things aren't going well, stop the audit to consult with a tax attorney or CPA before continuing - if you have representation during the audit and you still perceive that things aren't going well, consider stopping the audit to retain replacement representation.
- Ask to speak or deal with the audit agent's supervisor if you think that the agent isn't being fair to you.
The IRS Agent must complete an audit and give you an examination report within three (3) years of the time that you filed the return.
Appealing Audit Results
Most people end up owing tax to the IRS upon the conclusion of an audit or examination. If this happens, but you cannot afford to pay the entire tax owed at one time, you can attempt to enter into a payment plan or, if appropriate, an Offer In Compromise (OIC) with the IRS by taking the following steps:
- Meet with the auditor and/or his or her supervisor to discuss the process and/or report generated by the auditor to explore with them whether they're willing to be flexible or negotiable in order to avoid an appeal;
- Appeal the audit results to the IRS appeals office;
- Take an appeal in Tax Court.
In the event of an appeal, whether within the IRS or to the Tax Court, you will seldom secure a complete victory, but it will, in most cases buy you extra time to figure out how you'll pay the ultimate tax bill. One major downside to appealing, however, is that interest continues to accrue on the tax owed while the appeal is pending. An appeal within the IRS might also uncover or reveal issues not initially identified by the initial auditor, so appealing also carries with it a risk. Instructions for appealing an audit result should come with the examination or audit report, but you can also obtain this information at a local IRS office or online at www.irs.gov.
At Bell Law, LLC, we will remain at your side and provide aggressive advocacy until your tax law issue is resolved.
Protect your rights with the help of an attorney who will look at all options available to you. Contact us at 773-696-5087 or toll free at 888-574-7062.
Contact Us
For more information or to schedule an appointment with an experienced tax lawyer, please contact us. We assist with preparation and filing of IRS Code sections 501(c)(3) applications for charitable and not-for-profit organizations.
