IRS Audit Representation

You open your mail only to find the dreaded notice from the Internal Revenue Service (IRS). It's an audit. Does this mean you did something wrong? And what exactly are you supposed to do now?

Take a breath.

A tax audit doesn’t always stem from problematic circumstances. And it doesn’t have to mean trouble ahead.

In this article, we’ll clarify some of the potential reasons the IRS may have selected you for an audit. We also explore some of the benefits of tax attorney representation.

But first, let’s make sure we understand what an IRS tax audit is.

What Is an IRS Tax Audit?

An IRS tax audit is a review of your tax returns and financial information to ensure accuracy and compliance with tax laws. In an audit, the IRS will likely check your income, deductions, and credits to see if you paid the right amount of taxes. It might also ask for more information or documents to verify your claims.

The IRS conducts four main types of audits:

• Correspondence audits: Audits conducted by mail, where the IRS requests specific documents to verify items on your tax return
• Office audits: In-person audits at an IRS office, where you bring your documents and meet with an IRS agent
• Field audits: The most comprehensive type of audit, where an IRS agent visits your home, business, or accountant's office to examine your records
• Taxpayer Compliance Measurement Program (TCMP) audits: Detailed audits used to update the IRS's data on taxpayer compliance

Correspondence and office audits are the most common types of tax audits for individuals. They are generally simpler and less invasive than field audits.

Why Am I Being Audited?

The first thing to do when you learn you're being audited is to read the IRS notice carefully. It should explain why your tax return is being audited. The IRS uses several methods to decide who to audit:

Random Selection and Computer Screening

Sometimes, the IRS chooses tax returns for auditing based on a statistical formula. The IRS develops “norms” from audits of a random sample of returns and compares yours against "norms" for similar tax returns.

Document Matching

The IRS compares the information on your tax return with data from third parties, like employers and banks. Discrepancies may trigger an audit.

Related Examinations

If your return involves issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit, the IRS may audit yours as well.

Regardless of why you’re being audited, your audit letter should include the specific items under review and the requested information you’ll need to provide.

Can I Have Tax Audit Representation?

Yes. You may use a tax audit representative during a tax audit. Tax audit representation, also known as audit defense, is a service in which an authorized representative stands in on behalf of a taxpayer.

The tax code includes a provision covering taxpayer rights. Among those rights is the right to retain authorized representation when dealing with the IRS audit process. However, only a limited number of individuals can practice before the IRS. 

Many professionals, such as certified public accountants (CPAs) and enrolled agents, offer audit representation services.

However, you might want to consider working with a tax attorney. Legal representation can be critical as you face the nation’s most powerful taxing authority, especially if you disagree with the IRS's findings.

Why Should I Use a Tax Attorney?

A qualified tax attorney representing you during a tax audit can be very helpful. There are several key benefits to IRS audit representation by an attorney over other tax professionals.

Expertise and Knowledge

Tax attorneys are experts in tax law. They understand the complex rules and regulations that most people find confusing. This means they can help you understand what the IRS is seeking and how to respond correctly.

They’re also experienced with tax relief options that you may not be aware are available to you. For example, they can help you secure an “offer in compromise.” This allows you to settle your tax debt, if any, for less than the full amount you owe.

Protection of Rights

A tax attorney knows your taxpayer rights. They can make sure the IRS treats you fairly and follows the law. If the IRS auditor asks for something they shouldn't, your attorney can push back and protect you.

Handling Complex Issues

If your tax situation is complicated, like if you’re a business owner or have investments, a tax attorney can help. They are skilled at dealing with these complexities and can ensure your case is handled properly.

Negotiation Skills

If the IRS finds mistakes in your tax return, you might owe additional taxes or face penalties. A tax attorney can negotiate with the IRS on your behalf to reduce your tax liability or seek abatement of penalties. If an installment agreement makes sense for you, your attorney may also be able to negotiate more favorable terms with the IRS.

Legal Representation

If the IRS accuses you of tax fraud or evasion or things otherwise start to get serious, a tax attorney can represent you in tax court. They can build a strong defense and help you avoid serious consequences like fines or jail time.

Peace of Mind

Legal audit representation can reduce the stress associated with an audit. You can feel confident that your case is being managed by someone who knows what they are doing. After granting your lawyer power of attorney, you can let them deal with the IRS so you can focus on other things.

Confidentiality

The attorney-client privilege protects your communications with a tax attorney. This means they can’t be disclosed without your permission. You can be honest with a tax attorney about your situation without fearing they’ll share this information with the IRS. This confidentiality is not as strong with CPAs or enrolled agents.

Efficient Process

A tax attorney can make the audit process go more smoothly and quickly. They know how to present the necessary documentation to the IRS. This can save you time and make the audit less of a hassle.

Avoiding Future Problems

A tax attorney can also help you understand what, if anything, went wrong and how to avoid similar issues in the future. They may also offer advice to you on maintaining financial records and supporting documentation to avoid future issues.

Preparing for Your Audit

Read the IRS letter about the tax audit closely. The letter will include information on specific instructions you must follow. It will also tell you the deadline for responding.

Taking the following precautions can also help you successfully navigate the audit process:

• Research tax law as it pertains to your audit. Your attorney can help you better understand these laws.
• Don't rush if you need additional time. Asking the IRS to postpone the audit can give you a chance to organize documents and records.
• If possible, go to the IRS office for the audit instead of meeting at your business or home for privacy.
• Gather evidence for any large deductions, such as canceled checks, invoices, receipts, bank records, insurance reports, and even photos.
• Avoid giving the auditor more information than what is requested. 

Finding the Right Legal Representative

As you prepare to face the challenges ahead, remember that this doesn’t have to be a difficult time. A trusted advocate can be your most important ally during the audit process. Just make sure you use someone who’s qualified and with whom you’re comfortable.

Let Findlaw’s dedicated directory of tax attorneys get you started. Just click on your state to view contact and other information for local attorneys who can help. You can also narrow your search by city if you prefer.

Either way, don’t go on this journey alone. Get the benefit of an attorney’s experience with tax laws and the IRS.