IRS Tax Audit Defense
Is the IRS auditing your federal tax returns? Our tax audit defense lawyers can use their experience to help you avoid unnecessary tax liability and penalties.
Each year, the Internal Revenue Service (IRS) audits somewhere in the neighborhood of one million federal income tax returns. While the IRS conducts audits at random, it also conducts targeted audits that are triggered by what appear to be questionable filings. If you are being audited by the IRS, you need to defend yourself regardless of why you are being audited, as an unfavorable audit determination could lead to substantial liability and the risk of civil or criminal prosecution.
Oberheiden P.C. is an IRS audit defense law firm that represents individuals and businesses in all matters involving the IRS. In addition to senior attorneys who are experienced in handling IRS audits and complex federal tax fraud investigations, our IRS audit defense team also includes Mr. Chris J. Quick, a former Special Agent with IRS Criminal Investigations (IRS CI). We bring decades of experience to defending our clients during IRS audits, and we approach every audit with the same rigorous attention to detail and strategic focus on protecting our client to the fullest extent possible.
What Do You Need to Know When Facing an IRS Audit?
When facing an IRS audit, building and executing a strategic defense starts with understanding what issues (if any) need to be addressed. Is the agent simply seeking supporting documentation that you can easily (and safely) provide? Or, is it possible that you have underreported or underpaid what you owe to the U.S. Treasury?
Part of understanding the risks of an IRS audit involves understanding the nature of the audit itself. Generally speaking, “correspondence audits” – those conducted via mail without an in-person visit – are the least risky, and they usually require the submission of additional information to substantiate your returns. “Office audits” require a visit to the IRS, and “field audits” involve IRS agents coming to your home or place of business. In these audits, there is often significantly more at stake, but all audits carry the risk of the IRS discovering tax code violations that create substantial liability exposure.
Common Issues in IRS Audits
In terms potential tax code violations, some of the most-common issues that can lead to unfavorable outcomes include:
1. Failure to File All Necessary IRS Forms
While some taxpayers can get by with simply filing Form 1040 each year, many taxpayers are subject to additional filing obligations as well. Defense strategies in these cases can range from demonstrating that a specific filing was not required to seeking innocent spouse relief.
2. Miscalculation of Federal Tax Liability
If you (or your accountant or tax preparer) miscalculated your federal tax liability, the IRS will expect you to pay what you owe in full—plus interest and penalties. Even if you relied on a third-party to prepare your returns, you are still personally liable for submitting accurate information to the IRS.
3. Cryptocurrency-Related Tax Code Violations
Increasingly, cryptocurrency-related tax code violations are becoming a top priority in the IRS’s tax code enforcement efforts. Taxpayers who cannot accurately track their transactions can face significant challenges when responding to an IRS audit.
4. Business and Employment Tax Violations
Businesses are subject to multiple federal tax reporting and payment obligations, and failure to collect, report, or remit business or employment taxes can have significant consequences.
5. Failure to Report Foreign Income
United States taxpayers are required to report all income from all sources to the IRS. Failure to report foreign income can trigger substantial liability in an IRS audit.
6. Failure to Report Offshore Assets
In addition to reporting foreign income, U.S. taxpayers must also report their offshore accounts and other offshore assets using the Report of Foreign Bank and Financial Accounts (FBAR) form. Offshore asset reporting violations can lead to consequences with the IRS and the Financial Crimes Enforcement Network (FinCEN).
IRS CI “Strategic Priorities”
When conducting tax audits, IRS agents also examine taxpayers’ records for evidence of issues that may warrant a criminal investigation—including specifically issues falling within IRS CI’s four “strategic priorities”:
- Legal Source Tax Crimes – These crimes involve the underpayment of tax owed on income derived from legitimate sources.
- Illegal Source Financial Crimes – These crimes involve prohibited income-producing activities, such as racketeering and related offenses.
- Narcotics-Related Tax and Financial Crimes – In addition to other illegal source crimes, the IRS specifically targets offenses involving the sale and distribution of narcotics.
- Counterterrorism Financial Crimes – Individuals and organizations suspected of engaging in illicit financial practices related to counterterrorism efforts can face severe consequences.
Potential Outcomes & Penalties of IRS Audits
So, you are being audited by the IRS. What is at stake? The answer to this question depends entirely on the circumstances at hand. When you engage Oberheiden P.C. to represent you, our senior attorneys and consultants will promptly examine your tax records and determine both: (i) how much (if any) you may owe; and, (ii) what type of defense strategy you should pursue.
The potential outcomes of an IRS audit include:
- No Additional Federal Tax Liability – If you have fully reported and paid what you owe, our senior attorneys and consultants can work with the IRS to terminate your audit without additional liability.
- Settlement or Installment Agreement – If you have unintentionally underpaid your federal tax liability, one option may be to negotiate a settlement or installment agreement with the IRS.
- Offer in Compromise – Provided that you are eligible, negotiating an offer in compromise can reduce what you owe significantly if you have outstanding federal tax liability.
- Civil Liability for Tax, Interest, and Penalties Determined by the IRS – If the IRS is unwilling to negotiate a settlement agreement or offer in compromise, then you will be asked to pay what you owe, and at this stage we can challenge the outcome of your audit on appeal.
- Civil or Criminal Investigation for Tax Evasion or Tax Fraud – If the IRS determines that there is substantial evidence of tax fraud, then it may choose to initiate a civil or criminal investigation. In addition to IRS audits, we have significant experience representing clients in tax evasion and tax fraud investigations as well.
Frequently-Asked Questions (FAQs): Protecting Yourself During an IRS Audit
Q: What should I do if I have received an audit letter from the IRS?
If you have received an audit letter from the IRS, you should consult with a federal tax fraud defense lawyer promptly. At this point, the audit is not simply going to go away on its own. If you do not defend against the audit effectively, the IRS can seek to collect all back taxes its agents claim you owe, and you can be charged interest and penalties as well. However, by asserting a strategic defense, you may be able to substantially reduce your liability—if not avoid liability entirely.
Q: If I am being audited, can I deal with the IRS on my own?
If the IRS is auditing your individual tax returns, you have the option of dealing with the audit on your own. However, this is strongly ill-advised, and there are a number of reasons why. Among them, the Internal Revenue Code is extraordinarily complex, and an audit can potentially examine several years’ worth of your federal returns. An experienced defense lawyer will be able to thoroughly assess your risk exposure and deal with the auditing agent on your behalf.
Q: How often do IRS audits lead to additional tax liability and penalties?
It is difficult to say exactly how often IRS audits lead to additional tax liability and penalties, but this figure is ultimately irrelevant to the outcome of your particular audit. If there is evidence to suggest that you have underreported or underpaid your federal tax liability (or if you do not have adequate documentation to substantiate your returns), then you could be at risk.
Q: What should I do if I know I have underreported or underpaid my federal tax liability?
If you know that you have underreported or underpaid your federal tax liability, you will need to be especially careful in responding to your IRS audit. The IRS expects taxpayers to proactively address filing mistakes, and failing to do so can have consequences beyond those arising out of the initial filing mistake. While the IRS offers various voluntary disclosure options, these options are only available before the IRS starts looking into your returns. To assess your options, you should consult with an attorney promptly.
Q: What are my options if I cannot afford to pay what I owe the IRS?
If you cannot afford to pay what you owe the IRS, your primary options are to attempt to negotiate a settlement agreement or an offer in compromise. Each of these options is subject to its own rules and requirements, and negotiating effectively requires the advice and representation of experienced federal tax fraud defense counsel.
Speak with a Tax Audit Defense Attorney about Your IRS Audit
If you are facing an IRS audit and would like to speak with one of our senior IRS audit defense attorneys or consultants about your defense, we invite you to schedule a complimentary case assessment. Call 888-680-1745 to speak with a member of our firm in confidence, or contact us online and we will respond promptly.