How To Deal With IRS Tax Audit Issues
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8 AM – 6 PM
No one wants problems to arise in the course of their IRS audit, but they do come up. However, knowing what these potential problems are can help you strategize in advance to avoid them and ensure that your IRS audit goes more smoothly. In general, problems are more likely to arise during office audits or field audits than in correspondence audits. Correspondence audits are usually the ‘safest’ of the three, but even those can entail unexpected problems. Office and field audits, however, give you the disadvantage of being in the same room with the auditor, creating a risk that you’ll say something wrong or incriminate yourself. Accordingly, it’s always a good idea to hire a tax attorney after you receive notice of an office or field audit.
Unreasonable IRS Auditors
One of the most common problems in IRS audits is when the auditor is unreasonable. This, unfortunately, is one of those problems where there’s not a perfect solution. You may simply have the unfortunate luck of being in the wrong place and at the wrong time with the wrong auditor. There are, however, steps you can take to address this possible issue.
Most IRS audit defense attorneys will agree that giving a good first impression is a must. Be respectful and polite when you first meet the examiner. No need to flash your wealth with labels or luxury goods – you don’t want to stand out in their eyes. Your clothing shouldn’t call attention to your wealth. Making small talk is also a good idea. It can lighten up the mood and the atmosphere.
Unfortunately, sometimes taxpayers have to deal with difficult examiners. Some examiners can cross the line from ‘unreasonable’ to being downright rude or impolite. If this happens, you can politely call out their behavior. If this doesn’t work, you can request a new auditor by asking to see their manager.
Expanding The Scope of the Audit
IRS examiners are trained to go on fishing expeditions. This is generally fine so long as they stay within the scope of the audit. For example, if you’re being audited for your 2018 tax return, it’s expected that they’ll ask about deductions claimed for that year. However, if the audit notice mentioned only the 2018 tax return, and no other significant issues were revealed during your examination to expand the tax years under audit, the auditor shouldn’t be asking about evidence of your 2016 expenses. (See IRM 188.8.131.52.1 Scope of Examination for more information on the scope of examination).
The danger in allowing the IRS examiner to expand the scope of the audit is that it can increase your tax liability. You don’t want the IRS poking their nose into additional tax years. If the examiner is fishing, consider retaining an experienced tax attorney to represent you during your audit.
The IRS Auditor Interviews Other People
This problem can arise if you’re subject to a field audit. During a field audit involving a business, the examiner will want to talk to employees and possibly customers, especially if you run a cash-intensive business. They’re expected to be chatty to find out everything they can about your business’s overall financial picture. This interview of employees and customers may not be to your benefit. Even if you trust your employees, there’s still an off chance that they might provide compromising information. To address this problem, have the examiner come when you know the office will be deserted. Additionally, you can use the reason that allowing the examiner to come during business hours will interrupt your operations. Again, an audit defense attorney can best advise you on how to deal with a field audit of your business.
Assessment Without Notice
Phantom assessments are shocking and upsetting. This is the term used when you suddenly receive an assessment without receiving notice that you’re being audited. This happens because the IRS is legally mandated to send a notice to your last known address. However, the assessment may have been sent to your old address. If you don’t reply to the assessment, the IRS treats you as a no-show and proceeds with the audit anyway.
If you receive a phantom assessment, you can call either the IRS office that sent it or the Taxpayer Advocate Service and request an audit reconsideration.
Appeal The Assessment
Following the audit, the examiner may assess additional tax liability. Upon receiving notice of the assessment, the taxpayer has limited time to file an appeal. Of course, before filing an appeal, consult with tax counsel to evaluate the strength of your case. In some cases, appealing the results of your audit can save thousands of dollars, even considering the cost of legal representation.