Is IRS, FTB, EDD or CDTFA Tax Audit Defense by an admittedly more expensive Tax Attorney Worth It?
Other than dental appointments and visits to the DMV, few calendar events provoke the same degree of dread, concern, and anxiety as an upcoming tax audit by the Internal Revenue Service (IRS) or California’s Franchise Tax Board (FTB), Employment Development Department (EDD) or the California Department of Tax and Fee Administration (CDTFA formerly known as the BOE). While dismissing this fear is easier said than done – particularly for taxpayers who have never been audited before, and are therefore unsure of what to expect from the process – much of the uncertainty can be allayed by hiring a competent tax audit defense attorney. Of course, obtaining effective audit and appeals representation can do far more than simply set the taxpayer’s mind at ease. Perhaps more importantly, an experienced tax attorney can afford the taxpayer several benefits that would be lost or diminished were the same taxpayer to choose merely a CPA or EA for their representative or, worse yet, merely self-represented. If you, your spouse, or your business has been selected for an IRS, FTB, EDD or CDTFA audit, read on to learn why hiring a tax lawyer is in your best interests – and why failing to do so can place you in needless (and serious) financial jeopardy, at a minimum, or is worse case scenarios, additionally put your liberty and career at risk.
Do I Need a Tax Attorney, CPA or EZ for an IRS, FTB, EDD or CDTFA Audit, or Can I Represent Myself?
Nowhere does the U.S. or California Tax Code mandate that taxpayers must obtain representation when undergoing an IRS or California tax audit. The absence of a legal requirement for representation, coupled with concerns about the potential cost of hiring an attorney, may lead taxpayers to seriously consider self-representation, which is also known as “pro se” representation (from the Latin translation meaning “for oneself”).
While this may seem like a pragmatic response on the surface, there are several reasons why pro se representation can be an extremely dangerous method of complying with an IRS, FTB, EDD or CDTFA audit. Even representation by a Certified Public Accountant (CPA) – who is, after all, a highly skilled and knowledgeable tax professional – can be risky. In order to understand why – and conversely, to understand the benefits of representation by a tax lawyer – it is necessary to understand some key information about (1) the possible consequences of lacking representation, and (2) how CPAs, EAs and CTEC certified tax preparers differ from tax attorneys.
To begin with the latter point, CPAs, EAs and CTEC certified tax preparers and tax attorneys play very different roles in the audit process. While both are highly qualified to handle a wide array of complex issues related to tax planning and preparation, attorneys afford their clients several advantages over CPAs, EAs and CTEC certified preparers in the context of an IRS or California tax audit, egg shell audit or criminal tax investigation:
- CPAs, fewer EA’s and to a much lesser extend some CTEC certified preparers, are adept at ensuring compliance with a vast range of state and federal tax laws. However, tax preparers are not always an appropriate choice for managing a straight civil audit and are the absolute wrong choice when facing an eggshell audit or criminal tax investigation, especially where they prepared the return being examined. A conflict of interest rapidly develops where the preparer will often attempt to protect their own reputation which is invariably at the expense of their client’s best interests. Additionally, reasonable reliance on a professional is a fantastic justification for requesting penalty abatement but few preparers are willing to admit they gave faulty advice in order to secure such an advantage for their clients for fear of retaliatory malpractice claims. Where criminal tax issues are at play the original return preparer is highly likely to become government witness number one in order to show the accused taxpayer’s actions were willful and not merely negligent and thus make them the worst possible choice to represent a client in an egg shell audit or criminal tax investigation.
- Often, the IRS makes errors or oversteps its authority in conducting audits leaving the taxpayer needing to take a more adversarial approach by legally challenging the auditor’s claims through the specific taxing authority’s appeals, protest or litigation procedures. In which case the taxpayer will require an aggressive representative who possesses a law degree and who understands how to build a case from the available evidence, navigate the judicial system efficiently, and protect the taxpayer’s legal rights during an audit from being infringed upon. These abilities will be especially critical if the audit leads to potential criminal charges – an outcome which is particularly likely to result from a field audit or egg shell tax audit where the client cheated on the return being examined – in which case you will need a criminal tax defense attorney. This leads to the next point, which is that…
- Unlike CPAs, EAs and CTEC certified preparers, attorneys have what is known as the “attorney-client privilege” (ACP). As the name suggests, this privilege maintains confidentiality in attorney-client communications, extends solely to attorneys. As we noted in the ACP guide linked above, “The U.S. Supreme Court has long established that there is no federal accountant-client privilege. Thus, communications with accountants on federal tax matters have historically not been privileged except in certain limited circumstances, like for example, when the accountant is assisting an attorney…” If the audit gives rise to criminal proceedings – which readers of our tax blog will know is a fairly common occurrence – the accountant-client privilege will not afford the same degree of protection as the ACP.
If you still need convincing, simply consider our first point: heightened potential for serious mistakes in the absence of legal representation. If you are not represented by an attorney during your audit, you will place yourself at far greater risk of the following:
- You may inadvertently overshare or expose too much information to the IRS, which can place you in grave legal danger.
- You may inadvertently exacerbate your situation by taking ill-advised approaches like destroying records or ignoring IRS notices.
- You may not recognize when an IRS auditor is violating your rights or failing to observe rules that are in place to protect you.
- You may overlook and miss out on IRS programs or legal strategies that are designed to help taxpayers avoid or mitigate penalties, such as voluntary disclosures. (For more information on this subject, you may be interested in learning about how voluntary disclosures work, or the difference between quiet and loud disclosures.)
- You may miss critical deadlines, fail to file important paperwork, or prepare paperwork incorrectly.
- You may misunderstand or misinterpret rules surrounding the statute of limitations on tax audits, which could endanger you without your knowledge.
- You may weaken, or outright lose, your appeal rights by not following appropriate appeals, protest or tax litigation procedure.
In turn, you will place yourself at far greater risk of receiving a costly tax assessment – or worse, will place yourself on the radar of the Justice Department or California Attorney General’s office for potential criminal tax prosecution.
IRS, FTB, EDD and CDTFA Tax Audit Defense and Appeals Representation in California
As should now be amply clear, an IRS, FTB, EDD or CDTFA audit can have disastrous consequences for the unguarded taxpayer. In the interest of penalty mitigation, legal protection, and simple peace of mind, it is critically important to consult with an IRS tax audit lawyer – ideally at the earliest possible stages of the audit process. For a reduced-rate tax audit consultation, contact the Tax Law Office of David W. Klasing online or call us immediately at (800) 681-1295.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles we now have offices in San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Carlsbad, Bakersfield, San Jose, San Francisco, Oakland and Sacramento. You can find information on all of our offices here.
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