IRS Audit Representation
Every year, millions of taxpayers receive IRS audit notices. It can be daunting to receive a notification or letter from the Internal Revenue Service (IRS). The IRS can be extremely intimidating, and at the first notice of an IRS letter, many individuals find themselves overwhelmed with stress. Rather than scrambling to compile years of financial documents and income tax returns, taxpayers facing an audit should retain the services of an experienced audit representative.
The IRS will notify the taxpayer first by mail if the taxpayer has been randomly selected for an audit. The letter will have the contact information and detailed instructions on how to respond to the audit. In the initial letter, the IRS will request specific documents to proceed with the audit. The Internal Revenue Service may conduct the audit in person if the taxpayer doesn't respond to the document request by mail. Audits can take anywhere from six months to a year or more. The length of the audit depends on the nature of and circumstances surrounding the audit.
Tax audit representation, otherwise known as audit defense, is when a tax professional (such as a tax attorney, CPA, or Enrolled Agent) represents a taxpayer before the IRS or state during an audit. Although taxpayers may represent themselves during an audit, retaining an experienced tax professional's services will optimize the outcome.
Reasons to Use IRS Audit Representation:
There are many reasons why the IRS or state chooses to audit a taxpayer. Although many taxpayers assume that notice of an audit is negative, that is not always the case. Contrary to popular belief, an IRS or state audit does not necessarily mean the taxpayer in question has done something wrong. Listed below are a few reasons why the Internal Revenue Service (IRS) or a state taxing authority.
Basic Math Errors
Taxpayers often make the mistake of submitting inaccurate numbers on their tax returns. Although this mistake may seem insignificant, the IRS will assess necessary penalties. In order to avoid this simple error, taxpayers should triple-check the numbers on their tax returns. Additionally, some taxpayers may benefit from hiring a reputable tax professional to prepare their taxes.
Utilization Of Even Numbers
When filing tax returns, taxpayers should avoid using simplified estimates. Realistically, most entries on a 1040 and similar financial documents will not be clean and even. For example, if a business expense totals out to $296.89, then the number reported should be rounded to $297 instead of $300. The IRS will likely request evidence of the business expense if neat numbers are over-utilized.
Excessive Charitable Donations
The IRS offers deductions to taxpayers who have made charitable donations in the past tax year. However, taxpayers who have made excessive claims of charitable donations on their tax returns will likely face a tax audit.
Excessive Reporting Of Losses
Self-employed individuals may be tempted to write off personal expenses as business expenses. However, writing off such expenses will cause the Internal Service Revenue (IRS) to raise a few eyebrows. It is imperative that self-employed taxpayers only deduct expenses that are essential to their work.
Types of IRS Tax Audits:
No matter what the reason, being subject to tax audits is stressful. The Internal Revenue Service (IRS) is most likely to audit taxpayers due to a perceived issue with their tax returns. Before directly contacting the IRS to resolve such matters, taxpayers should first seek counsel from a licensed tax professional. A licensed tax professional can help guide taxpayers in the right direction and represent them during tax audits. However, IRS tax audit representation is not always necessary for every audit. IRS audit representation is usually only required in a more complicated case. Listed below are the different types of tax audits.
Written Correspondence IRS Audit
As the name suggests, written correspondence IRS audits are conducted through the mail. The IRS will send an audit letter via mail requesting supporting documents for certain claims or deductions. During this type of audit, taxpayers will typically not need audit representation unless they cannot provide evidence of their claims.
Office IRS Audit
An IRS office audit is a bit more severe and will require more attention. During this type of audit, the Internal Revenue Service (IRS) will assign a Revenue Agent (RA) to the case. The Revenue Agent will conduct an interview with the taxpayer regarding employment, financial circumstances, and any other cause for concern. This type of audit may require representation depending on the severity of the case.
Field IRS Audit
During a field audit, an IRS agent will conduct an investigation in the taxpayer's home and place of business. Additionally, the IRS agent can also conduct interviews with employees to gather information. This type of audit is known as the most comprehensive of all tax audits and can last anywhere from one day to one week. In this situation, taxpayers should immediately retain a tax professional's services to represent them before the IRS.
Random IRS Audit
Although the likelihood is uncommon, some taxpayers will be selected at random for an audit. The IRS randomly selects taxpayers for audit in order to compile data for research studies. Random audits are incredibly comprehensive as every line in the returns filed will be audited. Taxpayers facing a random audit should retain audit representation if they are aware of any discrepancies on their tax returns.
LifeBack Tax Professionals Are Experienced IRS Audit Representatives
It is possible to handle a tax audit without assistance from a tax professional. However, taxpayers facing more in-depth audits should consult a tax specialist to cover all their bases. A qualified team of tax professionals can successfully represent you before the IRS and settle your disputes. Keep in mind that the Internal Revenue Service (IRS) only allows licensed professionals to represent taxpayers before them. Qualified representatives include tax attorneys, Enrolled Agents, and Certified Public Accountants. At Lifeback Tax, our team consists of all three types of tax professionals.
Once our services are retained, the Lifeback Tax team will be able to represent you as a direct line of contact, compile supporting documents, appeal audits, and generally protect your rights as a taxpayer!
IRS Audit Representation FAQs
Sometimes an IRS audit is random. Other times, the IRS will undertake an audit to determine the source of any discrepancies.
Generally, less than 1% of tax returns are audited annually.
The IRS will notify you by mail. The audit will be managed by mail or an in-person interview. You will be asked to provide the IRS with specific relevant records. The IRS will conduct their audit. The length of the audit process will vary depending on the complexity of the case and availability of information.
Yes. The IRS will notify you by mail.
It is possible the IRS will levy a penalty for failure to keep tax records. Alternatively, it is possible you can address a lack of receipts in your interview or through other reconstruction.
The IRS will determine if you are subject to interest, penalties, civil liability, or criminal liability.
If the IRS finds evidence of fraud or other criminal activity during an audit, charges may be filed. Depending on the charge, jail time may be a penalty.
Any individuals who file taxes with the IRS may be subject to audit..
Sometimes an IRS audit is random. Other times, the IRS will undertake an audit to determine the source of any discrepancies that don’t make sense such as inappropriate deductions or tax credits.
It is recommended you seek the advice of counsel or a tax specialist.
The IRS will request information and documents to verify the earnings and expenses on your tax return.
It is possible the IRS will send you a tax bill with interest and penalties. It is highly recommended you respond to any audit requests promptly.