IRS Audit Defense

by torchlight08 | Dec 6, 2022 | IRS Representation

Your worst fear has occurred. The IRS is auditing you. Whether it is a correspondence audit by mail, an audit down in your local IRS Office, or an IRS Field Audit in your home or business, it is stressful.

You can represent yourself in an IRS Audit and may even achiever a successful result. Then again, you can walk away unscathed from pulling the trigger in a game of Russian Roulette.  That being said, unless you are talking about a correspondence audit with minor money involved, this is probably unwise.

One could argue that if you are totally honest and have excellent records  done your taxes correctly, you have nothing to fear in an IRS audit.  And there is truth in that.

But… what is you fibbed a little, or your records are spotty, or your return was not done perfectly.

Now we are getting to a more common situation. It does not mean you evaded taxes or paid less than you were required to. But perfection and taxes do not commonly appear together in front of an IRS Auditor.

So, what do you do if you are under an IRS Audit?

First, you signed an IRS Power of Attorney. Then you have your tax professional (EA, lawyer, or CPA please) review your tax records. It is usually prudent to get full IRS transcripts. This gives you the data the IRS has on your client. If a debt is owed, a completed financial questionnaire is needed.  From the client. This will allow the pro to propose solutions to tax debt that would work for the client and meet IRS guidelines.

The tax pro can see any errors in your returns or records and correct them.  He then meets with the IRS or corresponds with them, and works out a solution.  It is usually wise for the taxpayer to keep his mouth shut and leave this to the pro.  The pro of course knows what the IRS is supposed to ask and how to respond to them.  Also, if the IRS asks a question that catches him by surprise, he can say “Wow! $30,000 dollars deposit into the account by Jones Industries and not reported as income.  I have no idea what that is. I will  have to check with my client.” And then come back the next day with the explanation that the $30,000 was a loan from Uncle Bob Jone’s company and not income at all.

Do not get me wrong. I do not LIE to the IRS and I do not countenance my client’s lying to them. But in the heat of an IRS audit interview, it is easy to make a mistake and it can be disastrous. The Pro can come back the next day and put whatever situation in the best possible light.