The IRS conducts thousands of audits every year. While these audits can sometimes occur randomly, typically they are in response to something on your returns or supporting third party documents that was flagged by an IRS computer utilizing statistical differential analysis software which peaked an IRS agent’s attention and made them feel further scrutiny was warranted. You will then be subjected to a long and tedious process where you must reproduce your accounting and supporting records in extreme detail to back up the position you took on your tax return(s) that are under audit. If the IRS auditor finds that the return was incomplete or contained false or misleading information, you could face additional assessment of income, interest, and serious civil fines, and potentially even criminal tax exposure if the auditor believes the conduct was willful.
Sometimes, there will be warning signs that an audit is coming, which will give you a chance to prepare. At the Tax Law Offices of David W. Klasing, our tax professionals have successfully guided thousands of taxpayers through an audit and helped them to avoid the most serious potential penalties. We understand the best steps to take if you think an audit may be coming to protect yourself and your liberty.
See our Audit Representation Q and A Library
How to Know if an Audit May Be Coming
As noted above, sometimes audits can occur completely randomly, but this is the rare exception. Sometimes, a math error, miscalculation, or something else in the returns that does not add up could lead to an audit. Other situations that often lead to an audit include reporting a lot more income that you had in previous years, losing, or forgetting to file a form, or claiming an unusually large number of deductions or claiming credits you are not entitled too. Furthermore, taxpayers with undisclosed overseas bank accounts and unreported offshore taxable income tend to be audited at an increasingly higher rate.
For small businesses, there are other potential audit triggers. One factor that is most likely to get the attention of an agent or auditor is using round numbers on your tax returns. The IRS will be quite suspicious if all your income and expenses are in multiples of 100. Claiming unusually high deductions for meals and entertainment while “working” will also raise some red flags. Further, the simple fact that you work for yourself can make an audit more likely, as self-employed individuals tend to have more chances to falsify information without scrutiny. Agents will be especially wary of high deductions for home office use or the use of your personal vehicle for “business.”
How to Prepare for a Potential Audit
If you are in a high-risk group for being audited, or if you are afraid your return, whether intentionally or unintentionally, may contain false or misleading information, there are concrete steps you can take to give yourself the best chance of getting through this process and painlessly as possible.
Hiring A Tax Professional
For the best chances of avoiding an audit, you should hire a tax professional like the lawyers and CPAs at the Tax Law Offices of David W. Klasing before filing your return. We can review the information to be sure it is accurate, complete, and correctly filed. If you filed without the help of a tax professional, you should seek one out as soon as possible if you think an audit might occur. Note that, especially in cases where a criminal referral seems possible, it may be best to retain a tax lawyer rather than a CPA, as lawyers will be bound by attorney-client confidentiality regarding what you say to them in most cases. Our firm employs both types of tax professionals and we can help you figure out who can best assist you in your case. Our CPAs often work under the attorney-client and work-product privileges as they are employed by a law firm as Kovel accountants. If our firm believes that it is necessary to further protect the Attorney-Client Privilege, we will suggest utilizing a light of day accountant who will actually file a tax return.
Gather Records and Information
Many individual taxpayers, as well as small business owners, fail to keep proper records and documentation that they will be required to provide to the IRS in the case of a tax audit. Again, the best way to avoid this is to hire a tax professional like those at our office to help you with record-keeping and advise you on what can and cannot be discarded. If your accounting was not properly prepared, we can work to reconstruct your books.
One of the best things you can do to prepare for an audit is to organize your records by tax year as well as type of income or expense. The more well-organized your records are, the easier it will be for you to quickly provide the auditor with whatever type of information they are requesting. This will speed up the process and demonstrate to the auditor that you are on top of things.
Amending the Return
If, in reviewing your returns, you notice some minor mathematical errors or other inadvertent mistakes, there is a way you can amend your return(s) using a form known as 1040x. Although penalties can still apply, the agents might be less inclined to penalize you for an honest mistake that you corrected yourself. However, you should never amend your returns after being notified you are under audit before consulting with an experienced tax attorney like those at The Tax Law Offices of David W. Klasing. We can advise you on whether you are exposing yourself to potential criminal or civil liability, and if amending is really the wisest move.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed returns coupled with affirmative evasion of payment) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
See our Non-Filer Q and A Library
See our 2011 OVDI Q and A Library
See our FBAR Compliance and Disclosure Q and A Library
See our Foreign Audit Q and A Library
Call Our Skilled Tax Attorneys Today
While audits are often the stuff of taxpayer nightmares, they can usually be handled without too much pain if our clients take our counsel which includes the proper steps to prepare and to protect themselves. At the Tax Law Offices of David W. Klasing, our tax professionals have decades of experience successfully helping our clients to prepare for audits, especially where they fudged the numbers under audit. We routinely represent clients in audit proceedings and where necessary, fight to bring our client’s cases to the best possible resolution. We are also very skilled at appealing or litigating the often-erroneous results of an audit. Call us today at (800) 681-1295. to set up a consultation.
In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.
Our office technology allows clients to meet virtually via GoToMeeting. With end-to-end encryption, strong passwords, and top-rated reliability, no one is messing with your meeting. To schedule a reduced-rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client.
