IRS Audit Defense — Expert Representation When It Matters Most

What Is an IRS Audit?

An IRS audit is an official examination of your tax return by the Internal Revenue Service to verify that the income, deductions, and credits you reported are accurate. While receiving an audit notice can be intimidating, it doesn't necessarily mean you've done anything wrong. The IRS selects returns for audit through various methods, including random selection, computer screening, and comparison with similar taxpayers.

During an audit, the IRS examiner will review your financial records, receipts, bank statements, and other documentation to substantiate the items reported on your tax return. Depending on the scope and type of audit, this process can range from a simple correspondence exchange to an in-depth examination of multiple years of tax returns and business records.

Understanding that an audit is a formal legal proceeding is crucial. What you say, how you respond, and the documentation you provide can significantly impact the outcome. Having professional representation ensures your rights are protected throughout the process and that you present your case in the most favorable light possible.

Types of IRS Audits: Correspondence, Office, and Field Examinations

The IRS conducts three primary types of audits, each with different levels of complexity and invasiveness:

• Correspondence Audit: The most common type, conducted entirely through mail. The IRS typically requests documentation for specific items on your return, such as charitable contributions, business expenses, or earned income tax credit claims. While these may seem simple, improper responses can escalate the situation or result in unnecessary tax assessments.
• Office Audit: You're required to visit a local IRS office to meet with an examiner. These audits are more comprehensive than correspondence audits and typically involve multiple issues or more complex tax matters. The examiner will review your documents in person and may ask detailed questions about your financial activities.
• Field Audit: The most intensive type, where an IRS revenue agent visits your home, business, or accountant's office to conduct a thorough examination. Field audits often involve business returns, high-income individuals, or situations where the IRS suspects significant unreported income or fraudulent activity. These can span multiple tax years and involve extensive document requests.

Regardless of the audit type, professional representation is essential. Tax professionals understand IRS procedures, know what information to provide (and what to withhold), and can communicate directly with the IRS on your behalf, shielding you from potentially damaging statements or admissions.

What Triggers an IRS Audit?

While some audits are truly random, most are triggered by specific red flags in your tax return that the IRS's computer systems flag for further review. Understanding these triggers can help you avoid future audits and prepare better if you're selected:

• Mathematical errors or inconsistencies: Discrepancies between W-2s, 1099s, and your reported income, or simple calculation mistakes that result in lower tax liability.
• High income: Taxpayers earning over $200,000 face significantly higher audit rates, with millionaires experiencing the highest scrutiny.
• Excessive deductions: Claiming deductions that are unusually high compared to your income level, particularly for home office, vehicle expenses, meals, entertainment, or charitable contributions.
• Self-employment or cash-based businesses: Business owners, independent contractors, and cash-intensive businesses (restaurants, salons, contractors) face higher audit rates due to greater opportunities for unreported income.
• Claiming 100% business use of vehicle: The IRS is highly skeptical of claims that a vehicle is used exclusively for business with no personal use.
• Large charitable deductions: Especially those without proper documentation or that seem disproportionate to income.
• Foreign accounts and assets: Failure to report foreign bank accounts (FBAR) or foreign assets (FATCA) triggers intense scrutiny and potential criminal investigation.
• Amended returns: Filing amended returns, particularly those claiming large refunds, can prompt the IRS to examine both the original and amended returns.
• Round numbers: Using rounded figures throughout your return (e.g., exactly $5,000 in expenses) suggests estimation rather than accurate record-keeping.

Even if your return contains these elements but is completely accurate, you may still be audited. The key is having thorough documentation and professional representation to defend your positions effectively.

How Our IRS Audit Defense Works

Our audit defense process is designed to protect your rights, minimize your stress, and achieve the best possible outcome. From the moment you receive an audit notice, we take control of the situation so you can focus on your life and business. Here's our comprehensive approach:

Initial Consultation and Assessment: We begin by thoroughly reviewing your audit notice, tax returns, and financial records to understand the IRS's concerns and assess your situation. We identify potential issues, evaluate the strength of your documentation, and develop a strategic response plan tailored to your specific audit type and circumstances.

Representation and Communication: Once engaged, we become your authorized representative, meaning all IRS communications go through us. You won't need to speak directly with IRS agents or respond to their inquiries. We handle all correspondence, phone calls, and meetings, ensuring nothing you say can be misinterpreted or used against you.

Documentation Preparation: We help you gather, organize, and present documentation in the format the IRS requires. Importantly, we know what to provide, what not to provide, and how to present information in a way that supports your position without unnecessarily opening up other areas for examination.

Negotiation and Settlement: If the audit results in proposed changes, we negotiate aggressively on your behalf. We challenge incorrect IRS positions, provide additional documentation, cite relevant tax law, and work to minimize any additional tax liability, penalties, and interest. In many cases, we can reduce or eliminate proposed adjustments entirely.

Appeals and Further Action: If we cannot reach a favorable resolution during the audit, we can pursue IRS appeals to have your case reviewed by an independent appeals officer. We can also help with penalty abatement requests to reduce or eliminate penalties assessed during the audit.

The IRS Audit Process: What to Expect

Understanding the audit timeline and process helps reduce anxiety and allows you to prepare appropriately. While each audit is unique, most follow a similar pattern:

1. Audit Notice (Weeks 0-2): You receive an audit notice by mail (the IRS never initiates audits by phone or email). The notice specifies which tax year(s) are being examined, what items are being questioned, and what documentation you need to provide. You typically have 30 days to respond.

2. Initial Response (Weeks 2-4): We file a Power of Attorney (Form 2848) to represent you and respond to the IRS's initial document request. For correspondence audits, we submit the requested documentation. For office or field audits, we schedule the initial meeting at a mutually convenient time.

3. Examination Period (Months 1-6): The IRS examiner reviews your documentation and may request additional information. During office or field audits, the examiner conducts interviews and inspections. This phase can involve multiple exchanges as the examiner asks follow-up questions or requests clarification. We manage all communications and strategically respond to protect your interests.

4. Proposed Adjustments (Month 6-9): The examiner issues a report proposing changes to your tax return. This includes additional tax owed, penalties, and interest. We have the opportunity to dispute these findings by providing additional documentation, citing tax law, or negotiating with the examiner's supervisor.

5. Resolution (Month 9-12): The audit concludes with one of three outcomes: no change (you're cleared), agreed changes (you accept some or all adjustments), or disagreed changes (you dispute the findings and proceed to appeals). We guide you through this decision and explain the implications of each option.

Having representation throughout this process is invaluable. We prevent scope creep (where the examiner expands the audit beyond the original issues), protect you from making damaging statements, and ensure the IRS follows proper procedures and respects your rights.

Why You Need Professional Audit Representation

Many taxpayers consider handling an audit themselves, especially for correspondence audits that seem straightforward. However, this often proves to be a costly mistake. Professional representation provides critical advantages:

• Prevent Self-Incrimination: IRS agents are trained investigators. Casual conversation can lead to damaging admissions or open up new areas for examination. Representation ensures you never speak directly with the IRS, eliminating this risk.
• Technical Tax Knowledge: Tax law is incredibly complex. We understand which expenses are deductible, what documentation standards apply, and how to cite relevant code sections, regulations, and court cases to support your positions.
• IRS Procedures and Rights: We know your taxpayer rights, IRS internal procedures, and examination techniques. We ensure the IRS follows proper protocols and doesn't overstep its authority.
• Strategic Document Production: Providing too much information can expand the audit's scope; providing too little appears uncooperative. We know exactly what to provide, in what format, and when to stop producing documents.
• Negotiation Leverage: IRS examiners have discretion in how they interpret documentation and apply tax law. We negotiate from a position of knowledge and can often achieve results that unrepresented taxpayers cannot.
• Time and Stress Management: Audits are time-consuming and stressful. We handle all communications, meetings, and document preparation, allowing you to focus on your work and family.
• Better Outcomes: Studies consistently show that represented taxpayers achieve significantly better audit results than those who represent themselves, often saving many times the cost of professional representation.

The cost of professional representation is almost always far less than the additional taxes, penalties, and interest that result from inadequate defense. Moreover, representation fees are typically tax-deductible as a miscellaneous expense related to tax preparation and planning.

Consequences of Ignoring an IRS Audit Notice

Ignoring an IRS audit notice is one of the worst decisions you can make. Some taxpayers, overwhelmed or hoping the issue will disappear, simply don't respond. This strategy always backfires and results in severe consequences:

Automatic Assessment: If you don't respond to an audit notice within the specified timeframe, the IRS will automatically assess the maximum amount of additional tax, penalties, and interest based on their initial findings. You'll lose your opportunity to present documentation, dispute their conclusions, or negotiate a better outcome.

Loss of Appeal Rights: Failing to participate in the audit process eliminates your right to challenge the IRS's findings through the appeals process. Once the assessment becomes final (typically 90 days after the final audit report), your only recourse is to pay the tax and file a claim for refund, which is much more difficult and time-consuming.

Penalties and Interest: The IRS will assess accuracy-related penalties (20% of the additional tax), late payment penalties (0.5% per month), and interest (currently around 8% annually, compounded daily). These penalties and interest continue to accrue until you pay the full amount, turning a manageable tax bill into a crushing burden.

Collection Actions: Once the assessment becomes final, the IRS begins aggressive collection actions. This includes federal tax liens that destroy your credit, wage garnishments that take up to 70% of your paycheck, bank levies that freeze and seize your accounts, and property seizures. These collection actions can devastate your financial life.

Expansion of Examination: Your failure to cooperate may prompt the IRS to expand the audit to additional tax years or to refer your case to Criminal Investigation if they suspect fraud or tax evasion. What started as a routine examination can escalate into a criminal investigation with potential prosecution.

Even if you've already missed the initial response deadline, it's not too late to get help. We can often negotiate an extension, reopen the audit, or pursue other remedies to minimize the damage. The key is to act immediately—every day of delay makes the situation worse and reduces your options.

If you're facing an IRS audit, don't face it alone. Contact us today for a confidential consultation and let our experienced team protect your rights and achieve the best possible outcome.