IRS audits can be stressful and overwhelming. Tax returns are selected for audit either randomly or for a reason. The reason could be a related audit, such as a business partner or associated business being audited, or one of the dreaded “red flags.” The important thing to remember is not to ignore an audit notice and to make sure you have a good professional on your side.
Once your return is selected for an audit, it is imperative that you communicate with the IRS. Sometimes, clients believe that if they simply agree with the IRS and don’t defend themselves the issue will go away – quite the contrary. If you do not communicate with the IRS, even if it is as simple as requesting additional time to provide the requested information, the IRS will make an assessment, and this will not be favorable. The IRS can disallow the expenses or can assess additional income to your return and send you a bill that includes penalties and interest. Also, if you fail to respond, the IRS can open other years for audit. This means even if you agree to the first assessment the IRS is unlikely to go away and will probably come back for more.
Client also may believe that hiring an attorney might make them look guilty. This is another misconception. Hiring an attorney early in the audit process can potentially help limit the years under audit, can help narrow the line items under audit, and can help keep the line of communication open with the IRS. Oftentimes, the attorney can have most, if not all, of the IRS meetings and discussions without you and keep you out of the process. Lastly, in opposition to the idea that it makes you look guilty, we find that the IRS auditors prefer working with attorneys as the information is provided in a more concise and complete manner and the process is smoother and more efficient.
You can hire an attorney at any point in the audit process, from the first notice all the way through appeals and tax court. However, the sooner the better. While it may be possible to handle a basic audit if you have a good tax preparer, it is usually advisable to hire an attorney.
An IRS audit can be daunting, but the attorneys at Hone Maxwell, LLP are here to help guide you through the process. The Tax Attorneys at Hone Maxwell handle not only IRS audits, but also state income tax audits with the FTB, state employment tax audits with the EDD, and sales and use tax audits with the CDTFA (formerly SBOE), and our accounting and tax compliance backgrounds make us uniquely qualified to provide great service during an audit. Give us a call if you have any questions.