What To Do If You Are Audited – Taxpayer Representation

If You Are Audited…

In our country, we have a voluntary compliance system of taxation. This means we report to the government our income and deductions and compute the tax due ourselves. To insure that the tax laws are followed and the deductions on a return are legitimate, the IRS has the authority to audit our tax returns. If you receive a letter from the IRS, before you call them, call your tax preparer!

Types of Audits

There are generally three types of audits:

1.    Correspondence Audit: The IRS sends a letter asking you to verify certain items of income and deductions on your tax return. Generally, you can respond by mailing copies of your documentation. Never mail the original documents back to the IRS! If the IRS finds that you owe tax and you don’t agree, you may request an office audit.

2.    Office Audit: You receive a letter from a local IRS office requesting that you call for an appointment. The items in question will be listed in the letter. After making your appointment, you and/or your representative will take the records into the IRS office, and there you will verify your deductions and discuss with the agent any points of law on which you may not agree. If an agreement is reached with the auditor, your case will be closed. If you don’t reach an agreement, you may appeal.

3.    Field Audit: This type of audit is normally used for businesses. The auditor will come to your home or place of business. A field audit may also be conducted in your Enrolled Agents’ (EA’s) office, an especially good idea. You will need to have all your records there, but your home or place of business will not be disrupted.

How is a return selected for an Audit?

Normally a tax return is selected for an audit based on a combination of factors such as the amount and type of income and the amount of certain deductions. For example, if you operate a business or have rental property, your chances of being audited are slightly higher. In addition, people who have medical, charitable, or business deductions which are above the norm stand a greater chance of being audited.

You should never omit legitimate deductions simply because you’re afraid of being audited. Normally not more than two percent of the population is audited. Even if you don’t take advantage of all the deductions you are allowed, you may still be audited.

Since you’re more likely to be audited if you have failed to report some income, you can limit the risk of being audited by accurately reporting all of your income.

What should I do if I am Audited?

First, call your Enrolled Agent and inform him/her of your audit. After you have found all your receipts and documents needed for the audit, put them in order for the appointment. If you take a bag of receipts to “dump” on the auditor’s desk, the auditor will probably make you take them home to organize them.

Who can represent me at the IRS?

Remember, it isn’t necessary that you go to the IRS office yourself. Anyone can go with you to an IRS audit to present receipts. However, only three types of individuals are able to represent you by arguing points of law with the IRS: an EA, a licensed CPA, or an attorney.

Any of these three professionals may go to the IRS on your behalf to present your records and argue your case. These individuals are well acquainted with tax law and IRS procedures. Consequently, it is often best if an EA, CPA, or attorney handles your case.

Enrolled Agents are professional tax practitioners who have technical expertise in the field of taxation and are licensed to represent taxpayers before the IRS at all administrative levels. In addition, EA’s are the only tax practitioners required by federal law to maintain their expertise through continuing professional education. When you need up-to-date tax assistance, see an EA, or a CPA who specializes in tax.

What if I don’t agree with the IRS?

If you don’t agree with the auditor, you may appeal your case using the following procedures. First, you may appeal to the auditor’s supervisor. Next you may appeal your case to the Appeals Division of the IRS. The appeals officer, although an IRS employee, is often more knowledgeable of the law. Consequently, it is common to reach an agreement at this level.

If you still don’t agree with the appeals officer, you may appeal to Tax Court. This may be done without paying the tax due if you file within the time allowed. The IRS will issue you a Statutory Notice of Deficiency if there is no agreement. You have 90 days from the date this notice is issued to file a Tax Court petition and have your case heard without paying the tax.

Depending upon the amount owed, you may elect to file your case in Small Case Tax Court where an attorney is not needed. Otherwise, you would file your case in regular Tax Court. As an alternative to Tax Court, you may pay the amount of tax due and file a suit for refund in either U.S. District Court or U.S. Claims Court.

Most cases are settled before they reach the Tax Court. An EA can handle your case from the audit through the appeals process up to the point where you elect to file in Tax Court.

Contact us for assistance and questions: (818) 500-5100??