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In the picturesque coastal city of Carlsbad, known for its stunning beaches, thriving biotech industry, and affluent communities, a unique blend of natural beauty and economic growth defines the landscape. Yet, amidst the allure of its serene environment, the complexities of both federal and California state tax laws present a formidable challenge.

“Tax audit” may be one of the most dreaded phrases in the English language. Receiving a notification of an IRS or California state tax audit can send shivers down the spine of even the most seasoned resident of Carlsbad. If not navigated correctly, such an audit can, at best, lead to severe assessments of additional tax penalties & interest, to at worst, exponentially severe criminal tax charges. The looming threat of these consequences can strip you of your peace of mind, casting a shadow over your daily life and aspirations.

It’s imperative to consult with a dual-licensed Tax Audit Attorney and CPA, as early in your audit as possible, who can provide invaluable insights into your rights, ensuring that the IRS or California state tax agencies do not exploit your fears and unfamiliarity with the intricacies of federal or California tax laws. In a nation brimming with legal and financial professionals, only approximately 24,000 can claim the honor of dual licensure. An even smaller elite, an estimated mere 3,000, have earned the prestigious credential of a Master’s in Taxation. David W. Klasing, standing tall among this exclusive group, channels his unparalleled academic and hands-on 30 years experience to ardently support clients through their IRS, FTB, EDD and CDTFA tax audit challenges in the nation’s capital.

At the Tax Law Offices of David W. Klasing, we aim to curtail your tax liabilities and safeguard you from potential civil or criminal tax repercussions. From meticulously managing amended tax returns to handling intricate IRS FTB, EDD and CDTFA office, correspondence, eggshell, or reverse eggshell tax audits, we always place your interests at the forefront, ensuring minimized risks and solutions tailored to your needs.

With offices conveniently located to serve residents of Carlsbad and the surrounding communities, such as Oceanside, Vista, and Encinitas, our California tax firm has established a sterling reputation for providing trustworthy, efficient, and results-oriented tax guidance for investors, business owners, S corporations, C corporations, partnerships, limited liability companies (LLCs), sole proprietorships, non-profit organizations, and other entities or individuals facing complex tax questions and controversies. For a reduced-rate initial consultation tax services in Carlsbad, contact our law offices online, or call the Tax Law Office of David W. Klasing at (760) 338-7035 or (888) 640-3408 to schedule a reduced rate initial consultation.

3 Types of Tax Audits: Correspondence, Field, and Office

When you receive your notice letter indicating the California or Federal government’s plans to audit you or your small to middle-market business, you will discover which type of audit the IRS, FTB, EDD, or CDTFA will use. There are three basic types of audits: correspondence audits, office audits, and field audits. Each is conducted differently and comes with varying implications and severity. There are also two types of clandestine audits where criminal tax exposure is an issue: eggshell and reverse eggshell audits. These hazardous audits are defined by one party knowing or suspecting incriminating information the other party does not know. Taxpayers should be particularly cautious if a suspected eggshell audit or reverse eggshell audit is occurring since such cases can quickly be referred for criminal tax investigation & prosecution.

Correspondence Audits

Correspondence audits are performed, at least initially, through written correspondence. These audits typically question specific items from your business or individual tax returns instead of questioning your return. For example, if you claim to have donated a lot of money to a charity, the IRS or FTB may ask for proof of these donations. In that case, your audit may be resolved by mailing the IRS or FTB agent copies of receipts verifying the information. Still, you should be notified of any type of audit through the mail, not just correspondence audits.

Field Audits

Field audits are among the IRS’s and FTB’s most in-depth, stressful, frightening, invasive, and high-risk in-person examinations. Suppose your business or individual return is subject to a field audit. In that case, an IRS or FTB agent will request an in-person meeting to discuss discrepancies found on your tax return, which will occur either in your home or business location. Support from our experienced dual-licensed Tax Audit Attorneys and CPAs is precious and downright comforting when undergoing a field audit.

Office Audits

You will also have to sit down with an IRS of FTB agent in person if you are subject to an IRS or FTB office audit. However, these interviews will be performed at local IRS or FTB offices, which can be intimidating. During your office audit, you will be asked to answer questions about any item reported on your business or individual income tax returns. To resolve the issue, you must prove that the information you filed was correct or that you made a mistake in good faith.

Every type of audit should be taken seriously, no matter how minor or insignificant the underlying issue initially appears, as your net worth and potentially your liberty is at stake. As the IRS points out (bold our emphasis), “A correspondence audit can expand and become an in-person (field) audit, particularly if the issues grow more complex or the organization does not respond.” You need the services of a tax lawyer during correspondence audits to avoid incurring civil or criminal tax penalties. Our dual-licensed Carlsbad Tax Lawyers and CPAs can help you reconstruct the necessary records and mitigate any civil damages or criminal exposure for errors you made on the returns under audit. We will appear alongside you for an office audit if you have serious concerns about what was claimed on the return under audit.

Increased Audit Risk as IRS Targets $441 Billion Tax Gap

The federal tax gap, estimated at approximately $441 billion annually, represents a significant challenge for the IRS and a potential risk for taxpayers. The substantial tax gap in the United States, representing the difference between taxes owed and paid, has prompted significant action from the federal government. Congressional hearings are underway to explore strategies for recouping these lost revenues, focusing on offshore tax evasion and sophisticated avoidance schemes. The IRS’s increased focus on sophisticated tax evasion schemes means the risk of audits and criminal tax investigations is higher than ever.

The tax gap is primarily fueled by non-filing, underpayment, and intentional  underreporting of income. These are statistical issues and the leading reasons for IRS audits and criminal tax investigations. The IRS’s aggressive pursuit of reducing the tax gap means that noncompliance can lead to severe consequences, including penalties and interest charges, even for unintentional errors.

The Biden administration’s plan to bolster the IRS’s budget by tens of billions over the next decade signals a new era of intensified tax enforcement. This increased funding is expected to enhance the IRS’s capacity to aggressively target and investigate tax evasion. For taxpayers, this means that compliance is more crucial than ever. The risk of audits and criminal tax investigations will likely rise, particularly for those with complex tax situations or offshore interests.

Could an IRS Audit Lead to Multiple California State Audits as Well?

Another reason why it is so vital to work with a tax lawyer from the outset is the fact that the IRS and California State tax agencies are all known to share information. These organizations are (1) the Franchise Tax Board (FTB), which audits California personal and corporate income tax returns; (2) the California Department of Tax and Fee Administration (CDTFA) (formerly known as the BOE), which performs California sales tax audits; and (3) the Employment Development Department (EDD), which performs California employment tax audits. Accordingly, the FTB, EDD, and CDTFA may audit your California tax return(s), depending on what sort of return(s) you or your business filed. If an IRS or California state agency audit discovers problems or other improprieties, they will likely share this information with the sister agency. Thus, it is common for taxpayers in Carlsbad to face a federal and subsequent California state tax audit and vice-versa.

Carlsbad Tax Audit Defense Lawyers and CPAs

At the Tax Law Offices of David W. Klasing, we are well-versed in a wide range of domestic and international tax matters. Our team excels in navigating the intricacies of tax controversies, offering strategic, practical advice to clients embroiled in disputes with the Internal Revenue Service and California state taxing authorities like CDFTA, EDD, and FTB.

Our seasoned advocates are adept at developing persuasive arguments to support our clients’ positions. Our in-depth knowledge of the federal and California state tax system and our experience in tax policies and procedures gives us a strategic edge in resolving tax disputes efficiently and effectively.

We offer comprehensive tax representation services, including sensitive (eggshell) audits, tax compliance, reporting positions, employment tax issues, estate, and gift tax disputes, cases involving unreported income, civil fraud, negligence, accuracy-related penalties, and other tax-related penalties. Using our dual-licensed Carlsbad Tax Audit Attorneys & CPAs to quickly identify criminal tax exposure and mitigate the risk they create is your best chance at keeping the audit about money, not jail time.

We specialize in complex offshore tax issues and noncompliance, guiding clients through domestic and offshore voluntary disclosures, streamlined filings, tax injunctions, tax shelters, promoter investigations, and Office of Professional Responsibility (OPR) inquiries and investigations. Understanding the scope and limitations of IRS audits is crucial in tax disputes. Our dual-licensed Carlsbad Tax Audit Representation Attorneys & CPAs are here to help. We can assess your situation and advise on the best course of action, whether challenging the audit or extending the IRS’s time limit. Trust us to navigate these complex issues and work towards a favorable outcome for your tax concerns. For a reduced-rate initial consultation, call our Carlsbad tax office at (760) 338-7035 or contact the Tax Law Office of David W. Klasing online here.

Our Carlsbad office is conveniently located at:

701 Palomar Airport Rd Ste 300 

Carlsbad, CA 92011

(760) 278-3508