An audit of a tax return by the Internal Revenue Service (“IRS”) can occur for a variety of reasons. The IRS identifies certain groups of taxpayers and types of returns that are susceptible to increased tax assessments through the examination process, and selects returns to be audited on that basis. If a return falls within one of these IRS targeted groups, then the likelihood of it being audited is high. The IRS, moreover, routinely audits all clients of a return preparer that is being investigated for preparing fraudulent returns for his or her clients. Audits are also initiated based on information supplied to the IRS by former spouses, disgruntled employees, business competitors, and others adverse to the taxpayer.
Successful representation in IRS audit cases requires a thorough knowledge and understanding of the IRS’s audit procedures and, of equal importance, years of experience in dealing with Revenue Agents and their managers. Audits typically involve voluminous financial records. It is of critical importance that the taxpayer’s representative be able to interpret the relevant records and present them to the IRS in an appropriate manner.
The Role of Revenue Agents
Revenue Agents have the authority to issue summonses to banks, mortgage lenders, securities brokers and others that engaged in financial transactions with the taxpayer. It is imperative that the taxpayer’s representative be two steps ahead of the Revenue Agent in gathering and analyzing the documents that will be evaluated by the IRS as part of the audit process. This is especially true in cases involving unreported income or indefensible expenses claimed on a tax return.
Revenue Agents can refer cases to IRS Criminal Investigation. If there is a known, serious issue with a tax return, such as unreported income, the audit must be handled with the utmost care to avoid a criminal referral or the imposition of the civil fraud penalty, which is 75% (seventy-five percent) of the additional tax due.
Professional Taxpayer Representation
A Revenue Agent’s findings can be appealed administratively to the IRS Independent Office of Appeals. Many cases that couldn’t be resolved with the Revenue Agent are ultimately settled in Appeals. Cases that cannot be resolved administratively can be litigated. The fact that a taxpayer’s representative is also a litigator, with the ability to contest the case in court, has facilitated settlements with the Examination and Appeals Divisions.
My audit experience includes the following issues:
- Unreported Income
- Civil Fraud Penalty
- Partnership Issues
- Disallowed Business Expenses
- Real Estate Transactions
- Characterization of Income
- Abusive Trust Arrangements
- Eggshell Audits
- Audit Reconsideration Requests
- Offshore Financial Activity
- Foreign Bank Account Reporting