Tax Audit Representation
We specialize in IRS and State audits of business tax returns, individual income tax returns, and sales tax accounts. Our firm has successfully represented hundreds of business and individuals on correspondence audits, office audits, field audits and taxpayer compliance measurement program audits.
According to the 2017 IRS Data Book, individual income tax returns with adjusted gross income over $500k increased audit chances from .6% to 1.56% in 2017.
The audit rate for S-Corporations and Partnerships is .3% in 2017. Audits may have hit a 10-year low in fiscal year 2017, but they are not going away.
Correspondence audits are requests by mailed notice for additional documentation to support a specific form or deduction on your tax return. These audits are common and can typically be resolved by responding via fax or mail to the IRS with a copy of the proof needed to support the tax return. In some cases, these responses can require re-calculations of forms or the entire tax return. This may require tax audit representation to prepare the the missing tax forms, letters of explanation with support from the tax code or a reconciliation of the IRS’s tax computation to ensure accuracy.
Office audits are more involved and can require the taxpayer to meet at the local IRS office to submit documents and answer questions regarding the tax return. The nature of the audit is more complex and often times taxpayers require the representation of a CPA to explain how to prepare for the audit and respond on behalf of a taxpayer. In order for our team to represent you or your business in the audit, we are required to obtain a signed power of attorney and file with the IRS for the tax years under audit. Taxpayers are often very relieved to know that we can assist with the majority of the audit without their presence.
Field audits are comprehensive and time consuming and often include visits to the taxpayer’s home and place of business. Knowledge of the Internal Revenue Code is preferred when your business or personal income taxes are under this scrutinizing type of audit to understand the type of information the IRS needs to determine if a specific tax position taken by a business or individual is defensible.
Tax Compliance Measurement Program audits are intensive audits but considered to be mostly random. The IRS is analyzing every line item of the tax return to build or fine tune their data base of information for a specific business industry or type of taxpayer. These audits are extremely time consuming and require a great deal of organization. The audit is looking for discrepancies in the reporting of the tax return while they build the data for the DIF scoring system and the UIDIF scoring system.
How are tax returns selected for audit?
The Discriminant Inventory Function is a computer score attached to everyone’s tax returns that scores the tax return for the potential for change based on past IRS experience with similar returns. The UIDIF score rates the tax return for the potential of unreported income. The highest scores in either of these databases win the audit tag. There are still classes of taxpayers that tend to draw more scrutiny such as higher income earners and self-employed taxpayers filing a schedule C. Proper tax guidance can provide business entity structures that reduce audit risk and accounting processes that will reduce risk.
How can you reduce your chances of a tax audit?
While you cannot always avoid an audit, if you are aware of proper methods for documenting deductions and proper ways to report deductions, your deductions will draw less scrutiny. We provide our clients with methods to always be prepared for an audit without spending more time than necessary. We believe taxpayers should be well informed to take the deductions that rightfully theirs without the intimidation of the DIF or UIDIF audit selection system. We alert our clients to the deductions that might draw scrutiny if they are unusually large or out of the norm for the industry. We then provide the requirements to support the deduction so that our client can benefit from the deduction without the agony or intimidation of a potential audit.
We understand the anxiety that a taxpayer incurs when the IRS begins knocking on the door. Partner with us and we will provide the tools and guidance to properly organize, prepare and present an accurate response to the IRS on your behalf. The more extensive the audit, the more audit responses require an understanding of the tax code and IRS audit procedures. The IRS offers many opportunities for payment plans, penalty removal and extensions. Knowing your rights and how to work with the IRS programs can mitigate an overwhelming tax bill. Proper tax audit representation will save you or your business precious time and provide peach of mind.