The Audit Defense Process: How it Works

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You’ve heard about tax audits, but you never dreamed that you’d be the subject of one. The truth is, IRS audits are uncommon, but if you become one of the one million people the IRS audits each year, then you’re probably feeling a little lost about what to do.

Navigating the tax code is not easy, especially if you’re someone who uses tax software that navigates all the complicated parts of the tax code for you. For this reason, it is important that you not try to make it through an audit on your own. Thankfully, a tax attorney can help you through the tax audit defense process.

Not sure how the tax audit defense process works? You’re in the right place. Read on to learn everything you need to know about surviving a tax audit and why you should hire Silver Tax Group to help.

What Is the Tax-Audit-form

What Is the Tax Audit Defense Process?

A tax audit defense is mounted whenever a person who is being audited by the IRS retains a tax lawyer or tax professional to represent them.

The IRS limits who can represent you to specific professionals who they have authorized to practice such as an attorney or a certified public accountant. The tax lawyer or professional then guides you through the entirety of the tax audit.

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Audit Defense Choices

There are two types of tax audit defenses: pre-paid audit representation and independent counsel.

Pre-paid audit representation is a service that the person or company with whom you file your taxes offers before an audit even occurs. Pre-paid audit defense services require that you pay whether or not you’re audited, but they cover the full cost of representation in the event that you are.

Independent counsel is a service that you hire only when you’ve been selected for audit by the IRS. Instead of a flat rate, you pay the cost of representation, whatever that may be. It costs more than pre-paid audit representation, but you get to choose exactly who represents you.

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How and Why the IRS Selects Tax Returns to Audit

The primary concern of the IRS when they select a person to audit is to make sure that the tax return that person filed is accurate. If you are selected, it doesn’t necessarily mean that your tax return has issues or that you’ll be penalized. It does mean that your return stood out to them, however.

There are six ways the IRS selects tax returns for audit, four of which apply to individual taxpayers and owners of small and medium-sized businesses: abusive tax avoidance transactions, computer scoring, information matching, and related examinations. 

When a return is selected for an audit because of abusive tax avoidance transactions, it means that the IRS is concerned that you have taken steps to avoid tax liability that is not necessarily legal. These are called abusive tax shelters. For example, if you own a business and funnel money to a management company to avoid tax liability, then the IRS may consider that to be abusive.

In some instances, the IRS selects returns for audit through computer scoring. The IRS uses two computer systems to analyze your tax return and give the IRS two different scores, one that scores the potential for changes and one that scores the likelihood that you have unreported income.

The higher your score, the more likely it is that you’ll face an audit.

Other tax returns are selected for an audit because the income the taxpayer reports on their tax return doesn’t match other records of income the IRS has. Mismatched income flags your tax return for audit. You can also be selected for a tax audit if your return has issues related to other taxpayers, like your business partner.

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What Happens During an Audit?

There is no one way for the IRS to conduct an audit. For this reason alone, it is important that you have representation that is familiar with all the ins and outs of the tax audit process to protect yourself as much as possible.

The first sign of an IRS tax audit is a letter from the IRS that details why you’ve been selected for an audit, the steps in the audit process, and it gives you a chance to respond. This is the only way the IRS will notify you that you’re facing an audit — be wary of any phone call stating that you’re being audited or asking for money. This letter is also the first opportunity you’ll have to obtain representation.

A tax return audit is conducted in one of two ways: by mail or by in-person interviews. Tax audits conducted by mail are generally less serious and may be as small as requesting additional information to verify the accuracy of your tax return.

Audits conducted via in-person interview are less common, but they have more potential for serious outcomes such as criminal liability.

In-person interviews are done in a variety of spaces, from the IRS office to your own home. Expect the IRS to request to review your records, financial statements, applicable receipts, your check register, and anything else that will help them understand your tax situation.

After the IRS conducts their audit, they make one of three decisions. They can look at all the information you provided and conclude that your tax return is true and accurate and close the case.

If the IRS finds discrepancies in your taxes, then they may make the necessary changes and then charge you any additional taxes, interest, and penalties. You can pay what the IRS charges you, or you can challenge their decision by setting up a meeting with an IRS manager. 

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Appealing the Outcome of an Audit

Once the IRS has completed an audit of your taxes and finds you financially or criminally liable, you will have the chance to appeal their decision. If you don’t already have a tax attorney, you will want to retain one for this process so you can mount the most effective appeal possible.

Your tax attorney has 30 days from the issuance of the decision to file an appeal with the IRS Office of Appeals. Once the IRS Office of Appeals receives the appeal, they will assign an Appeals Officer to reevaluate your case. 

If you are unsuccessful with the IRS Office of Appeals, or if you are outside the 30-day window to appeal to that office, then you will receive a 90-day Letter and you can appeal to either the U.S. Court of Claims, the U.S District Court, or, most commonly, Tax Court.

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Why Should I Hire Silver Tax Group?

Going through an IRS tax audit is one of the most stressful experiences you’ll ever go through. After all, you’ll be working with IRS employees who know the tax code front and back and can identify any type of error you may have made on your taxes. Don’t make the mistake of assuming that you can get through the tax audit process on your own without the aid of a professional.

Tax law is a complicated body of law that requires the care and experience that a Silver Tax Group attorney can provide. With over four decades of experience successfully taking on the IRS, Silver Tax Group can give you peace of mind during this stressful experience.

If you’ve just received your first notice from the IRS about an incoming tax audit, then it is important that you contact Silver Tax Group immediately. Hiring a tax attorney as soon as you receive notice from the IRS ensures that you are fully protected and that you don’t say or do anything that puts you at risk for substantial penalties or criminal liability.

Silver Tax Group can also assist you with audits by mail, in-person audits, and any mixture of the two. We can also appeal the results of an audit with the IRS or through the court system.

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Get the IRS Tax Audit Help You Need

There’s a lot to the tax defense audit process. From the first notice of the audit to filing an appeal, it’s important that you engage the services of an experienced tax attorney to help you reach the best possible outcome of this stressful situation.

Ready to get in touch with a tax attorney that’ll make sure you’re protected throughout a tax audit? Whether you’re just starting the audit process, or you need emergency assistance, you’re in the right place. Contact us today to see how we can help you deal with the IRS.

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