Going through a tax audit is a fear for most taxpayers — especially business owners. The process involves the Internal Revenue Service (IRS) or state taxing authority figuratively and literally digging through your income tax returns and IRS documents to look for reasons to assess more taxes, thereby interrupting filers’ lives and business operations and making everyone miserable.
Audit defense services exist to give you peace of mind, and those who use them often save time, money, headaches, and themselves from having to deal with IRS agents. The following guide will provide more information about the audit process, tax audit defense services, and why your business may want to invest in them.
Protect Yourself From The IRS
While the idea of an audit can be intimidating, remember that you have the right to professional representation. Engaging an experienced tax defense team can make all the difference when facing the IRS. In the most extreme cases, penalties from audit errors can result in hefty fines or even jail time, making professional assistance crucial.
What Is Tax Audit Defense?
Tax professionals, online preparation services, and tax prep software providers typically offer tax audit defense services, which is like insurance for filing your tax return. You pay additional fees for audit defense protection, just like you pay premiums for homeowners’ insurance to protect your house if it suffers major damage from some event.
The audit defense service add-on promises to help you if you face an IRS or state audit of tax returns you filed with the professional, website, or software provider, though the exact type of support and actions each provider takes during the audit process varies.
Examples of some services that might be a part of audit defense include:
- Responding to audit notices on behalf of an individual or business
- Attending hearings or meetings with auditors on behalf of the filer
- Resolving tax liability, identity theft, and criminal activity related to the audit
- Paying penalties for audits that are the result of a tax professional’s or tax software’s mistake
Your chances of getting audited by the IRS are relatively low. Historically, less than 1 percent of all tax returns get audited by the IRS, but the rate increases with income.
For example, the IRS audited more than 6 percent of all 2017 returns with adjusted gross incomes greater than $10 million and only about 0.7 percent of returns that had adjusted gross incomes below $25,000 for the tax year.
Income is not the only factor however, and understanding what goes into a tax audit can help you decide if audit defense protection might be a good idea for your situation.
5 Tax Audit Defense Options
| Method | Description |
|---|---|
| 1. Tax Software Add-Ons | Some tax preparation software, like TurboTax and TaxACT, offer add-on audit defense services. These typically cost an additional fee and provide representation in case of an IRS audit. |
| 2. Prepaid Audit Defense | Companies like Silver Tax Group offer prepaid audit defense services. For a one-time annual fee, they provide professional representation if you’re audited. |
| 3. Professional Tax Services | Many certified public accountants (CPAs) and tax attorneys offer audit defense as part of their services. This typically involves an hourly rate and can range widely depending on the complexity of the case. |
| 4. Tax Resolution Firms | Firms like Silver Tax Group specialize in complex tax situations, including audits. They handle everything from communication with the IRS to negotiating settlements. |
| 5. Insurance Policies | Some insurance companies offer tax audit insurance as part of business or professional liability policies. This can cover the costs of professional representation during an audit. |
Average Tax Audit Defense Costs
Here’s a table detailing the average costs of IRS Tax Audit Defense Services:
| Provider | Cost | Google/Trustpilot Reviews |
|---|---|---|
| Cross Law Group | Simple Audits: $2,000 to $3,000+ | 4.9 |
| TaxAudit.com | Audit Defense Membership: $49.99+ per tax year | 4.8 |
| Brotman Law | Tax audit representation: Between $3,500 and $10,000+ per tax year | 4.5 |
| TurboTax (MAX) | Audit Defense Product: $494+ | 4.5 |
| Silver Tax Group | Expert Audit Defense: Starts from $699+ | 5 |
| Franskoviak CPA | Audit Defense: $3,500 to $10,000+ | 4.8 |
Please note these costs can vary depending on the complexity of the case and specific details of the audit.
How an IRS Tax Audit Works
The IRS approaches audits in a few different ways, but, any should take correspondence you receive from it seriously. Here is a broad overview of how each main type of audit works.
Letter Correspondence
The least intrusive tax audit is simply a letter from the IRS. The audit notice usually requests supporting documentation for a deduction, credit, or another aspect of your return. Once you mail in the requested documentation, it’s likely your issue will be resolved.
If you do not have the requested proof, you can choose to pay the difference and close your case or fight the issue with the IRS. It’s imperative that you take action when you receive the first notice so you don’t incur penalties.
IRS Office Audit
An office audit happens when the IRS wants to speak with you directly concerning your tax return. The IRS will request you visit one of its offices for an interview with an audit representative. This is a more serious matter than a letter and should be viewed as a complete audit.
The IRS schedules an appointment on a specific date and time and a specific office. You must attend the meeting, but you can also bring a tax professional or legal representation.
IRS Field Audit
Field audits are serious like office audits, but your friendly, neighborhood IRS agent comes to your home, business, or accountant’s office. These audits are general audits that are not limited to specific line items on your returns. Instead, the agent goes through ALL of your tax return information.
The IRS does do field audits on individuals, but businesses must undergo field audits more often.
Under an IRS Tax Audit?
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The IRS Provides 3 Categories for Guidance:
- IRS regulations which are generally binding. Even reliance upon temporary regulations will not result in assessing penalties.
- The IRS publishes a number of sources known as “official guidance.” This includes Revenue Rulings, Revenue Procedures and a variety of announcements and notices included in bulletins. In theory, taxpayers cannot be assessed penalties and taxes for following this official guidance.
- The IRS publishes its “unofficial guidance.” Unofficial guidance can include website articles, press releases, various forms, tax instructions and its FAQs. Though the IRS publishes this information, it also maintains that taxpayers cannot rely upon it. If a taxpayer relies upon this information and later finds out it is wrong, they will still face penalties.
Guidance changes over time
What is even worse, all of these materials are subject to change without notice. This means you could follow the unofficial guidance of the IRS and still face a tax audit by the IRS.
When you have questions concerning tax issues such as what forms to file and what deductions to take, professional advice and representation may be in order. An experienced attorney can assist and, when necessary, raise a defense to the IRS.
When it’s tax time, the last thing you’ll want to worry about is getting audited. It’s a real possibility, which is why when this happens, immediately retain an attorney for tax audit help.
Lawyers that are trained and seasoned can make your tax process a breeze, and can defend and represent you during an audit.
To find out why these professionals are so necessary, consider the following information.
Benefits of a Tax Defense Attorney on Your Side
Tax Attorneys Have a Better Handle on the Auditing Process
Just 1 in 60 people are audited each year. Since this is such a paltry number, it’s hard to nail down a rhyme or reason for when and why people get audited.
You need to bring in a lawyer to help you, since they have a much better handle on and understanding of audits.
There are many terminologies that come with the territory that you might get bogged down with and lost. They can also take the temperature of the situation, so to speak, to assess what the Internal Revenue Service is assuming about your taxes.
This part is important, since they won’t be forthcoming during the investigation until they’re ready to present their findings. Your lawyer can analyze how deep they’re looking into your taxes to let you know whether the IRS thinks it’s a criminal situation or an oversight.
Having this preemptive knowledge will be valuable in crafting a defense against the audit.
2. You Could Be Subject to Penalties, Fines and Tax Fraud Charges
Because tax evasion and tax avoidance are very real issues, you need to be certain you are getting all the legal help you need.
An audit could be about clearing up a mistake, and you could get a small fine, or the IRS could hit you with expensive penalties and worse — criminal charges.
With so much on the line, it’s only right that you have a lawyer familiar with what entails tax evasion and tax avoidance, so you can present evidence to the contrary.
People that evade taxes account for more than $130 billion in unpaid taxes, so expect the IRS to be aggressive on these sorts of matters.
Do you know how the IRS defines tax fraud vs. negligence? Read more here.
3. There Are Different Types of Audits
Besides terminology and legalese, there are also different audits.
Some examples include a correspondence audit, an office audit, and field audit. These audits all have their differences, and your attorney can help differentiate them and assist you with whichever type you are subject to.
With a correspondence audit, the IRS will send you letters in the mail detailing mistakes, usually minor, that need to be corrected. You can take this correspondence to your lawyer, so that the two of you can decide if mistakes were actually made.
From there, they can be corrected, and your lawyer will help you send correspondence to the IRS.
An office audit requires you to come into a local IRS branch to go over records and correct or explain discrepancies. This audit is a lot more complex and involved, and you will definitely need the help of an attorney.
You will generally be given an appointment for this office audit, and an agent that is assigned to your case.
With a field audit, the IRS will come out to your home or office. You’re able to request an office appointment instead, but this might prompt the IRS to think you’re being elusive, so consult an attorney for advice on this.
4. Getting Tax Audit Help Cuts Out Mistakes
The last thing you’d want to do is have your taxes investigated for mistakes, only to then also make mistakes on your audit defense.
When you have the help of a lawyer, they’ll be able to reduce the mistakes you make, so that your audit defense is ironclad. This expedites the audit process and helps to make sure you get success and results.
5. You Will Have More Negotiating Power
Tax attorneys are also great negotiators, which can get you the best-case scenario for your tax audit.
Having a lawyer can help you negotiate the ideal payment plan or other form of settlement. These lawyers will help you get organized and send documents to the IRS as requested.
When the IRS requests proof and documentation, it’s important that you send only exactly what they are asking for, and nothing more. Your lawyer will help be the go-between in this process, so you can protect yourself and negotiate accordingly.
As your attorney negotiates, they will help you and the IRS reach an Offer in Compromise, qualify for the Fresh Start Program, and other available measures.
Also, if the IRS moves forward with criminal charges, your attorney can then represent you in that regard. Since you gave them a head start in understanding your situation by helping you with the audit, they will also be better able to defend you against criminal charges.
Therefore, it’s so important to do your research and find the absolute most dependable tax attorney that you can find.
Why Businesses Need Tax Audit Defense
A tax audit costs businesses time and money and involves mountains of paperwork. In the event of an audit, you can expect the process to take from a few months up to two years. The law provides auditors up to three years to perform your tax audit and assess additional taxes.
It’s important to note that tax audits typically do not turn out in your favor. You might provide all the documentation and tax forms requested, and the auditor might not assess more taxes, but it’s highly unlikely he or she will increase your tax refund or decrease your tax debt.
Additionally, if you are not happy with your audit results, you must wait 30 days before you can appeal the auditor’s decision. You will need to file a request under the Freedom of Information Act to receive the auditor’s records so you know the information that is on file, then sift through that information to determine where the issues reside.
Having tax audit defense helps you save time and money by letting professionals deal with the audit process. Audit representation also increases the likelihood that you do not need to spend the extra time for an appeal.
Benefits of Having Audit Defense Services
Accountant – Client Privilege Doesn’t Exist
Tax attorneys and accountants aren’t the same things, and a key difference outside of legal knowledge is client privilege. It does not exist in a criminal matter with accountants.
They can hand over anything.
If you have received notice of a tax return audit, your first impulse may be to call your accountant or the accountant that prepared your return. You may even want to call one right away if you prepared your own return.
That’s a good thing to do, but you should still call a tax lawyer.
Accountants would have access to all of your paperwork and required documents, but they won’t know how you should fight for your rights.
Additionally, the accountant that prepared your return may be worried about themselves, if they didn’t do something properly on your return. They will be more concerned about their rights than yours.
It presents a conflict of interest at audit time.
A Case of Privilege Lost
The Supreme Court has long-held that accountants do not have attorney-client privilege in a criminal matter, but tax attorneys do. The Internal Revenue Code 7525 of 1998 holds an “accountant privilege,” but that privilege disappears during a criminal matter.
In a 2009 case in the 6th Circuit of Appeals known as the United States v. Rutherford, any statements made by the defendants to their tax accountant could be submitted as evidence. When the accountant in the case, a CPA, realized the individual needed legal representation, they did not advise their client accordingly.That weakened the rights of the defendant, who was ultimately prosecuted criminally for that tax return audit.
An accountant may feel free to hand over whatever they want on your file to the IRS to save themselves. Your tax attorney may not want them to do that. Be careful what you say to your accountant.
You Can Accidentally Say Too Much
When you are facing a tax return audit, your first defense will be to get defensive. You may reply right away to an email or submit something that maybe you don’t need to submit. You want to clear your name right away, but this could lead to more problems down the road. Tax attorneys know your rights, and what you should and shouldn’t say or submit to the IRS. Avoid the problem of saying too much inadvertently by calling a tax attorney as soon as an audit comes to the table. Do not destroy or submit anything you aren’t sure of until you contact an attorney. Take note of these 11 red flags that may spark a tax return audit, or get you in trouble when you are defending yourself during one.
You Don’t Know Your Rights
If the IRS is communicating with you about an audit, your rights are not at the top of their minds. They will, of course, follow the law, but they are putting their interests first.
And the interests of the IRS are to collect as many taxes as they can to keep federal revenue flowing the way they want it to. The IRS is as under-funded as any federal agency, and one of the ways they combat that is by collecting your money.
They aren’t worried about whether or not you know your rights, and the IRS isn’t worried about whether or not you know them either. Your tax attorney does though.
There are legal strategies in place that can help you undergo a successful tax return audit, and may even get you more in a refund. A tax attorney knows how to do this.
Your audit has a better opportunity at being completed faster and achieving a better outcome if an attorney is in charge.
It is intimidating for any Michigan taxpayer to have to deal with the IRS. However, not many people know that the IRS adopted a taxpayer bill of rights.
While it seems fair that taxpayers have certain rights, the tremendous power of the IRS to enforce tax laws can prove intimidating for taxpayers facing IRS scrutiny. The IRS can punish taxpayers through the use of audits, liens, and wage garnishments. In some instances, taxpayers may even face criminal penalties and jail time.
What These Taxpayer Rights Include
There are ten items within this taxpayer bill of rights that are applicable to all taxpayers. Some seem like commonsense. For example, the IRS needs to inform taxpayers regarding what steps to take to be in compliance with tax laws. Taxpayers also have a right to receive quality services when it comes to tax advice and preparation.
However, taxpayers also have the right to only have to pay the correct amount of tax, and not have to pay one cent more. Taxpayers also have a right to challenge the IRS on rulings. This includes the right to raise objections and receive a formal response from the IRS.
In many instances, taxpayers can appeal adverse rulings. Taxpayers also have the right to know the time period needed to challenge any positions taken by the IRS.
The IRS needs to respect the rights to due process for taxpayers. Taxpayers also have rights concerning privacy and confidentiality.
Most importantly, taxpayers have the right to have an experienced tax attorney at their side during any proceedings. And they have a right to expect the tax system to be just.
You May Miss or Forget Deadlines
When you are undergoing a tax return audit, you will always be given deadlines and precise information. But you may not know what the IRS means about something, or may not be sure of what to hand in.
Not only do you not want to say too much to the IRS, but you also don’t want to miss something critical. Failing to provide the proper paperwork to the IRS could be seen as an avoidance tactic, even if you innocently missed something you shouldn’t have.
Your tax attorney will know every deadline, every filing that needs to occur, and every piece of paperwork that is needed to secure a positive outcome for you.
If you miss a deadline or don’t provide the right information, you could be penalized or even lose some of your appeals rights.
Contact a tax attorney as soon as you are faced with an audit, if for no other reason than to ensure the correct procedure has been followed.
Peace of mind is easy to come by in an audit when the administration of the audit on your end is handled properly and in a way that maintains your rights. That’s what tax attorneys do.
Considering a Tax Defense Service? Reach out today for a free consultation.
Why You Need an Audit Defense Provider You Can Trust
Having an audit defense provider you can trust ensures you face the IRS with the best defense possible, and you actually save time and money by using the service.
Most importantly, working with a trusted tax advisor can help you make sure you are prepared and protected as you go through the audit process. CPAs and other tax professionals understand tax law and know how to apply it to individual and small business tax returns to save clients time, money, and potentially reduce their tax debts.
Let Professionals Relieve Your Headaches
Today, declining resources at the IRS are leading to more audits, and some of those are leading to criminal investigations. In an age of technology, it’s easier to spot red flags and areas of noncompliance with the tax code.
The IRS is counting on individuals not being knowledgeable enough, and the Congressional Budget Office (CBO) is hoping to fund more money to the IRS to spot those red flags. As a result, the IRS is hoping this extra funding could help them get even more money from you to the tune of $55 billion dollars over the next ten years.
Working with an experienced tax attorney can make all the difference in your audit defense. Contact the professionals at Silver Tax Group today to discuss your tax audit defense questions or to speak with an expert about other tax-related questions you might have. Don’t let the headache of a tax return audit overwhelm you- let the experts relieve your worries.
