Awards & Recognition
When a tax audit concludes, the IRS may propose and assess additional tax, interest charges, and civil penalties. In a worst-case scenario, the audit could even give rise to a criminal tax investigation. This may occur if the auditor discovers indicators of fraud, or tax evasion, at which point he or she will refer the case to the IRS Criminal Investigation Division (IRS-CI). If you have been chosen for an IRS audit, the time to begin preparing is now. To discuss your tax issue confidentially in a reduced-rate consultation with an award-winning attorney-CPA, call the Tax Law Office of David W. Klasing at (805) 617-4566, or contact us online to schedule an appointment. Please note that all meetings at our San Jose tax office must be scheduled in advance as they are by appointment only. See our policy on scheduling an appointment at one of our satellite offices here:
For How Many Years Can the IRS Audit Me?
This question may have different answers depending on why you are being audited. Under normal circumstances, the IRS has, under the applicable statute of limitations, a maximum period of three years in which to audit your tax returns, counting down from the date on which the return was originally due or filed, as discussed here. However, certain tax scenarios extend the statute of limitations, giving the IRS more time to audit you. For instance, the IRS may audit for up to six years if the taxpayer has “substantially” underreported his or her income. Critically, there may be no statute of limitations if the taxpayer has failed to file a return, meaning the IRS can audit the taxpayer years or even decades down the road.
Be advised that the IRS may audit for up to three years from the due date or date of filing, up to six years from the due date or date of filing, or potentially even indefinitely, depending on the situation. For more information on this subject, refer to our articles on the following topics:
- How Many Years Can an IRS Audit Go Back?
- What is the Statute of Limitations for the IRS to Assess Tax?
- What Will Reset the IRS Statute of Limitations Period?
How Do I Know if the IRS is Auditing Me?
Overall, there is a low statistical likelihood of being audited by the IRS. However, certain taxpayers are at higher risk, including high-earning taxpayers, self-employed taxpayers, and taxpayers who claim charitable deductions. While exact numbers fluctuate, the IRS typically audits about 1 million tax returns each year, which accounts for roughly 0.5% of all returns filed annually. So how do you know if yours is one of them? If the IRS decides to audit your federal tax return, you will be notified via mail. If you receive a phone call or an email from somebody claiming to work for the IRS, be on high alert for a scam.
Why is the IRS Auditing Me?
Some taxpayers are chosen for auditing simply due to random selection. However, in most cases, audits are initiated because the IRS has detected some sort of discrepancy or omission in the taxpayer’s records. While you should not panic over an audit notice, you should take the letter seriously and begin to prepare for the audit with help from an experienced tax attorney. Examples of reasons why the IRS may choose you for a tax audit include:
- Claiming an excessive number of charitable donations
- Claiming the Earned Income Tax Credit (EITC) or Child Tax Credit
- Deducting excessive business expenses
- Earning a high level of income
- Failing to report all income or all sources of taxable income
- Owning your own business
- Underreporting or overreporting income
Knowing the strategies for surviving a tax audit can help you emerge from the process with minimal damage. As your representatives throughout this process, we will work to ensure that the auditor follows IRS procedures strictly and does not overstep boundaries or violate your legal rights.
See our Tax Audit Q & Library Here
What Happens During a Tax Audit?
The course of your tax audit depends on which type of audit the IRS conducts. Types of federal tax audits include:
- Correspondence Audits – A correspondence audit is a tax audit that takes place entirely by mail. These are generally the simplest and least intensive types of audits.
- Office Audits – In an office audit, you or your representative will visit an IRS office so that the audit may be conducted in person.
- Field Audits – In a field audit, the IRS auditor may come to your place of business or even your home looking for tax documents over a period of days or weeks. Field audits are the most comprehensive – and most invasive – types of tax audits.
- Eggshell and Reverse Eggshell Audits – An eggshell audit is any audit – correspondence, office, or field – in which the tax return being examined contains a significant misstatement of income. A reverse eggshell audit means that a criminal investigation and a civil investigation are occurring at the same time.
See our Criminal Tax Q & A Library Here
What Happens if the IRS Finds an Error on My Return?
If the IRS finds errors while auditing your tax return, there may be several consequences. If the error seems minor or accidental, the IRS may simply request additional forms or information, which could be sufficient to clear up the issue and end the audit. If the error is significant, the auditor will want to examine your records closely, and may even come to your home or business in search of financial documentation.
If the auditor finds indicators to suggest that the error was intentional, or “willful,” he or she may end the audit and refer your case to the IRS Criminal Investigation Division (IRS-CI). At that point, a Special Agent from IRS-CI is assigned to investigate you for tax fraud, creating a danger of criminal prosecution. If IRS-CI determines that prosecution is appropriate based on the available facts and evidence, the IRS will refer your case to the Tax Division of the U.S. Department of Justice (DOJ).
What is the Penalty for Filing an Incorrect Income Tax Return?
The answer to this question depends on whether the taxpayer made an honest tax mistake or acted willfully to evade federal income tax liabilities. In the former scenario, the taxpayer may face IRS penalties for failure to file and/or failure to pay taxes, depending on the nature of the violation. These penalties are as follows:
- Failure-to-File Penalty – 5% per full or partial month the non-filing persists
- Failure-to-Pay Penalty – 0.5% per full or partial month the non-payment persists
If the error was willful – in other words, if the taxpayer engaged in tax fraud – criminal penalties and civil fraud penalties may be imposed. The civil fraud penalty, in accordance with 26 U.S. Code § 6663(a), amounts to 75% of the underpayment. As the statute provides, “If any part of any underpayment of tax… is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment… attributable to fraud.”
Moreover, the taxpayer will face criminal penalties, which vary depending on the precise nature of the fraud. For instance, under the federal tax evasion statute (26 U.S. Code § 7201), maximum tax evasion criminal penalties are up to five years in prison and fines up to $100,000 ($500,000 for corporations). The penalties for willful failure to file or pay taxes include, under 26 U.S. Code § 7203, maximum fines of $25,000 and up to one year in prison. For more information, refer to our article discussing civil and criminal penalties of income tax fraud.
What if I Don’t Agree with the Results of My Audit?
If you disagree with the outcome of your audit, you have the option to request appeals. The purpose of the IRS appeals process is to review questionable tax assessments, penalties, and interest charges – and, where appropriate, to make corrective adjustments as needed. By appealing a tax disagreement, you may be able to demonstrate that the assessment is improper and should not be sustained.
To request appeals, you must submit a written protest to the IRS. However, your written protest should not be sent directly to the IRS Office of Appeals (which will merely cause delays), but rather, to the address provided on your IRS notice. Your written protest must contain certain elements, including but not limited to the following:
- Your contact information
- A statement that you wish to appeal
- Copies of pertinent IRS notices
- The item (or items) you wish to dispute, accompanied by fact-based, detailed reasoning to support each of your positions
See our IRS Appeals Q &A Library Here
See our IRS Tax Litigation Q & A Library Here
Can I Appeal the Results of an IRS Audit?
The short answer to this question is yes, potentially. However, you must submit multiple documents to the IRS exhaustively outlining and supporting your position within specified deadlines, citing the facts, laws, or court decisions on which your appeal will be based. It is in your best interests to seek an experienced IRS audit appeals attorney to represent you throughout this process, which demands a technical, in-depth familiarity with the Internal Revenue Code and various Tax Court rulings.
IRS Tax Audit Lawyers and CPAs in San Jose, California
Facing a tax audit is a stressful proposition – but you don’t have to go through the process alone. The audit defense attorneys at the Tax Law Office of David W. Klasing can guide you, helping you avoid the dangers and mitigate the penalties you may be facing. Contact us online today to set up a reduced rate consultation or call the Tax Law Office of David W. Klasing in San Jose at (805) 617-4566.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney-client relationship. 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. We are generally happy to travel to any of our appointment-only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, whose main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here:
