When the Internal Revenue Service (IRS) or California Franchise Tax Board (FTB) comes knocking for an audit, they wield tremendous power, far more than most taxpayers realize. These auditors are trained interrogators, not customer service reps, and even a seemingly friendly conversation can and most certainly will be used against you.
In fact, anything you say to a tax auditor on your own can inadvertently expand the scope of the audit and, in worst-case scenarios, even establish evidence of criminal intent. Many well-intentioned taxpayers think that by being open and cooperative, the auditor will “go easy” on them. In reality, IRS & FTB agents are not your advocates – the more information you freely provide, the more avenues they have to increase your tax liabilities, extend the audit to multiple years, or refer your case for criminal tax prosecution if they detect willful tax evasion. The FTB, closely monitors California state tax compliance and will assess substantial taxes, civil penalties and interest and seek criminal tax penalties where appropriate, and interest for any non-compliance it finds.
If you suspect there are any questionable items on your returns – unreported income, overstated deductions, or other discrepancies – meeting with an auditor alone is extremely dangerous. You might think you can “clear the air,” but even innocent explanations can come off as inconsistencies or admissions of wrongdoing when scrutinized by a seasoned auditor. Worse, if the agent uncovers indications of fraud (for example, deliberate underreporting), they are required to halt the civil audit and refer the case to the IRS Criminal Investigation Division (CID) for a full-blown criminal tax investigation. In that moment, the routine civil tax audit transforms from a mere financial examination into a life-altering criminal tax case, and anything you’ve already said will be used as evidence. In short, facing federal or California state tax auditors without legal counsel is a gamble with your freedom and finances. Engaging an experienced dual-licensed Tax Attorney & CPA at the outset of a high-risk tax audit is essential to avoid compounding your problems and to protect yourself from life-altering criminal tax exposure.
IRS and California FTB Audits: What to Expect and Your Rights
A tax audit – whether by the IRS or California FTB – typically begins with an official letter, not a knock on your door. The notice will identify the tax year(s) under review and the specific items or issues in question. It will also request documents or information to substantiate your tax return. Both the IRS and FTB conduct audits in several formats. For straightforward issues, you might encounter a correspondence (mail) audit; more complex matters could lead to an office audit at the agency’s office or a field audit at your home or business. In any case, you will usually receive Information Document Requests (IDRs) outlining the records the agency wants to see. Auditors will work with you (or your representative) to schedule meetings and deadlines, review your documentation, and give you a chance to explain the items under scrutiny. It’s a rigorous “prove it or lose it” process in which every deduction or credit must be backed up, or the agency will assume it’s not allowed.
Throughout an audit, you have some necessary rights. Chief among them is your right to retain professional representation. One of the ten fundamental rights outlined in the Taxpayer Bill of Rights (TBOR), adopted by the IRS in 2014 and subsequently codified in the Internal Revenue Code at 26 U.S.C. § 7803(a)(3), is the right to retain an authorized representative of the taxpayer’s choice to represent them in their dealings with the IRS. This right is explicitly articulated in IRS Publication 1, which states: “Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS.”
In fact, if you are summoned for an IRS interview, you can send your attorney, CPA, or enrolled agent in your place – you generally don’t have to attend personally as long as you authorize someone to act on your behalf. Both IRS and FTB must suspend an audit interview if you say you want to consult with a representative. California’s Taxpayers’ Bill of Rights similarly affirms that you may have an accountant or tax attorney represent you at any time during an FTB audit. These rights exist for good reason: the tax code is complex, and most taxpayers (even business owners) lack the specialized knowledge to navigate an audit’s legal and technical minefields. Exercising your right to representation levels the playing field, ensuring that you don’t accidentally forfeit protections or divulge information in a way that harms your case.
It’s also critical to understand how an audit might end. After the auditor reviews everything, they will issue results in writing. Outcomes range from a “no change” letter (audit closed with no adjustments) to a proposed tax increase with penalties and interest (often via an IRS Exam Report or a California Notice of Proposed Assessment). If you disagree with the findings, you have the right to appeal or protest, for example, by bringing your case to IRS Appeals or California’s Office of Tax Appeals (OTA). However, the appeals process is complex, with strict deadlines and procedural rules. This is yet another juncture where having a dual-licensed attorney–CPA is invaluable: they can negotiate with the auditor’s managers, navigate the appeals bureaucracy, or even litigate in court if necessary. The bottom line is that from the moment a tax audit starts, you are in an adversarial process – one where the government has seasoned examiners and attorneys on its side. To level the playing field and secure the best possible outcome, you need a team of experienced dual-licensed tax attorneys and CPAs that not only matches but outmaneuvers the guile of federal and California state tax agencies.
Pitfalls of Self-Representation in High-Risk Tax Audits
Entering an IRS or FTB audit without an attorney is akin to walking into a lion’s den without a shield. Even honest taxpayers can make critical mistakes when trying to handle audits themselves. Here are some of the significant risks you take by meeting with a tax auditor without legal representation:
Self-Incrimination
Anything you disclose to the auditor can and will be used against you later. Even seemingly harmless remarks about your finances can be misconstrued as admissions of wrongdoing, especially if they conflict with information on your tax returns or in your records. You might think you’re clarifying a point, but if your explanation doesn’t perfectly match your documents, the auditor may view it as a false statement or an intentional omission.
Rapidly Escalating Scope
What starts as a single issue can quickly snowball. You might enter the meeting hoping to resolve a question about one deduction or bank account, only to have the auditor expand the audit to additional years, related businesses, or other items on your return. For instance, volunteering that you “probably have some other income from side jobs” could lead the IRS to open up prior years’ returns or dig into your bank statements, searching for unreported income. Without realizing it, you may open new fronts in the audit that you’re not prepared to handle.
Potential Criminal Tax Exposure
Perhaps the most significant danger is turning a routine civil tax audit into a clandestine IRS-CI or FTB criminal tax investigation. IRS & FTB auditors are trained to spot “badges of fraud.” If they suspect you willfully underreported income, kept double books, claimed false deductions, or engaged in any tax evasion tactics, they will quietly involve the IRS’s or FTB’s Criminal Investigation Division. You likely won’t even be told when a Fraud Technical Advisor or special agent is brought in behind the scenes. Similarly, an FTB auditor who uncovers possible tax fraud can refer your case to the FTB’s criminal investigation unit or even the IRS-CI through information-sharing agreements. Information you voluntarily provide to an auditor, without an attorney present, can become the foundation of criminal tax charges, such as tax evasion (felony), filing false returns, or even conspiracy. In short, by speaking freely, you might hand the government the very evidence needed to prosecute you.
No Attorney-Client Privilege
Communications with non-attorney tax professionals (even your longtime accountant or preparer) are generally not privileged in criminal tax matters. If you choose to rely on your CPA or handle things yourself, be aware that anything you tell a non-attorney can be subpoenaed and used as evidence. There is a limited “accountant-client” privilege under IRC §7525, but it does not apply to criminal tax cases or state tax proceedings. This means your CPA, bookkeeper, or enrolled agent can be forced to testify about conversations with you and turn over their work papers. You have effectively no confidentiality, a devastating disadvantage if the audit uncovers potential tax fraud.
Let The Tax Law Offices of David W. Klasing Be Your Shield in a High-Risk Tax Audit
At the tax law offices of David W. Klasing, our dual-licensed Tax Attorneys and CPAs, skilled in criminal tax defense, are adept as serving as a buffer, preventing you from making inadvertent admissions that can establish “willfulness”—a key element the IRS needs to prove criminal intent. In contrast to your original tax preparer, we offer:
Attorney-Client and Work-Product Privileges—Plus Kovel Protection: When you hire our firm, every conversation is cloaked in the strongest confidentiality the law allows. Anything you tell us, and our staff, is protected by attorney-client and attorney work-product privileges; the IRS or FTB cannot force disclosure. By law that shield is extended to our in-house forensic CPAs through their employment with a law firm and their assistance in providing a legal service. Thus, their analyses and workpapers are equally off-limits. In contrast, if you only involve an outside CPA, that person could end up being the IRS’s primary witness, potentially “witness number one” against you in a criminal tax trial. Using our dual-licensed Tax Attorney–CPAs ensures that all facets of your interactions with the auditor are conducted in a protected, strategic manner.
Strategic Guidance That Manages Risk, Not Creates It: As soon as we are retained, we intercept every phone call, Information Document Request, and meeting invitation. We often decline “voluntary” interviews in high-risk exams, responding instead with carefully scripted written answers, eliminating the casual chatter that so usually derails taxpayers. If the auditor issues a summons, we decide when to comply, when to assert the Fifth, and how to negotiate terms. We also watch for red flags, like the sudden appearance of a Fraud Technical Advisor, which signals a possible criminal tax referral, allowing us to pivot immediately toward a civil resolution.
Dual Expertise in Tax and Law
Fewer than an estimated 25,000 professionals nationwide hold both law and CPA licenses simultaneously, and an even smaller fraction have additionally earned a Master’s in Taxation (or equivalent)—the credentials David W. Klasing brings to every audit. This matters because an audit often straddles the line between accounting details and legal implications. For example, if the IRS agent proposes a huge adjustment, a pure accountant might crunch the numbers, but a tax attorney will also consider legal defenses: Is the adjustment supported by law? Are the auditor’s methods valid? Can we appeal on procedural grounds? With David W. Klasing, you get the best of both worlds.
No rational taxpayer would walk into a courtroom without a lawyer; meeting with a tax auditor is no different. Your hard-earned assets, your business, and even your very liberty can be on the line in a high-risk IRS or FTB audit. The question “Is it a good idea to meet with your tax auditor without an attorney?” should be answered by now: a resounding NO. If you’ve been notified of an audit (or even just suspect one is coming), don’t delay. The earlier you get legal counsel, the better your chances of controlling the outcome. For immediate support or guidance, call us at (800) 681-1295 or contact us online to schedule a reduced-rate initial consultation. At the Tax Law Offices of David W. Klasing, we are here to protect your liberty, defend your net worth, and help you stay steps ahead of the government. Facing a tax audit is daunting, but with a seasoned tax attorney on your side, you won’t have to face it alone – and that can make all the difference in the world.
