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Why Seek Legal Help for an IRS Audit?

Receiving an IRS audit notification is a stressful event for any taxpayer. There are so many variables in most tax returns that it may not be clear what triggered the audit and what you will need to review with the IRS.

What is an IRS audit?

Briefly, an IRS audit is a detailed review of a tax return to ensure that all information is accurate and in compliance with tax laws. It can be a straightforward process or more complex, depending on the issues involved, but knowing your rights and obligations and working with a tax professional if needed can help navigate the process. Audits can be conducted through the mail, in the IRS office, or at the taxpayer’s home, business, or accountant’s office. The type of audit depends on the complexity and specific issues involved.

How does the IRS choose who to audit?

The odds of an audit by the IRS are not entirely random. Certain factors or “triggers” can potentially attract the attention of the IRS and increase the likelihood of an audit. Understanding these triggers can help you navigate your tax filing process with more confidence and ease. Here are the top five audit triggers as per IRS statistics:
  • Errors in Filing: Any errors in your tax returns, like mathematical errors, missing or incorrect social security numbers, or discrepancies in income reported can trigger an audit. The IRS reported that about 2.1% of individual tax returns with apparent errors were audited in 2022.
  • Inconsistency in Reported Income: The IRS matches the income reported on your tax return with the information reported by your employer, clients, or financial institutions. Any discrepancy can lead to an audit. A recent IRS report revealed that discrepancies in income accounted for approximately 1.5% of individual audits in 2022.
  • High Income: While this is not an error, having a high income increases the chances of an audit. As per the statistics mentioned earlier, individuals with an income of $1,000,000 and above had an audit rate of 2.39%.
  • Excessive Deductions: If the deductions on your tax returns are disproportionately high compared to your income, this could raise a red flag. The IRS does not disclose specific percentages, but the principle of staying within the norm for your income level applies.
  • Foreign Transactions: Having large foreign transactions or financial interests abroad can also trigger an IRS audit. In 2022, about 1.3% of individuals reporting foreign transactions were audited.
You can learn more about your chances of being audited in our recent article – IRS Audits: Are You Really the Next Target?

When you receive an IRS Audit letter, STOP and consider your options.

Before you communicate with the IRS about an audit, consult with a tax attorney about your options. Often a client will know the answer to this question at the very beginning.  But, here are some of the typical reasons why someone would seek out legal support.

  1. If there are questionable items on the tax return
  2. There is no paperwork supporting the items on the return being audited
  3. If the client thinks that the tax return preparer was not honest or knowledgeable

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How a Tax Attorney Can Provide Support DURING an IRS Audit

The Internal Revenue Service is not your friend, and they may try to entrap or trip up a taxpayer without representation. Often the client does not want to talk to the Internal Revenue Service at all, and that is fine.

The tax attorney, sometimes working along with the accountant, will handle the audit and all correspondence with the Internal Revenue Service, and will control the flow of information. The tax attorney will also do the necessary research to show the Internal Revenue Service cases and regulations that support the positions taken on the tax return.

Also, an audit can be conducted at the tax attorney’s office, rather than the IRS offices.

How a Tax Attorney Can Provide Support AFTER a Tax Audit

Many taxpayers find that they owe additional taxes based on the audit report and there are several options for moving forward.

  • If a taxpayer owes a substantial amount of money, there may be some options for setting up a monthly payment plan with the IRS. A skilled tax attorney can help the taxpayer to negotiate that repayment program.
  • If the taxpayer feels the need to challenge the audit report, he/she may appeal the audit results. A tax attorney can help the taxpayer optimize their response to the IRS Appeals Office.
  • Finally, if the findings of the IRS Appeals Office is not in the taxpayer’s favor, they may want to take the case to court. This step involves compiling and presenting evidence in a court of law. A tax attorney would be critical in this scenario.

An IRS tax audit can be stressful and overwhelming to most taxpayers. If you do find out that you will be audited, contact us to learn more about your legal options and how we can help.

Recent Client Success

We just helped our client settle with the IRS for just over TEN CENTS on the Dollar!

February 2023: We had a very successful meeting with actual Internal Revenue Service agents in our office this week. My client, who owes $192,000 for tax years extending all the way back to the year 2001, will pay only $1,000 a month for 22 months, representing a huge savings, and a well-deserved relief from the stress of dealing with the Internal Revenue Service for such a long time.