March 24, 2021
10 Essential Steps to Representing Yourself in an Audit
10 Essential Steps to Representing Yourself in an Audit
If you are audited by the IRS, beside ending up with a crippling tax bill, there is also a more menacing danger. The chance that your auditor will "refer" you to the IRS Criminal Investigation division. Here is the short list of things you need to know when representing yourself in an audit:
1. Know your Rights.
Before your audit, read IRS Publication 1, "Your Rights as a Taxpayer." This is absolutely critical for you to know your rights as a taxpayer.
2. Know How the IRS is Going to Attack You.
The IRS has a series of audit guides by industry. These Audit Techniques Guides (ATGs) help the IRS Auditor prepare for your audit by providing insight into issues and accounting methods unique to specific industries. While ATGs are designed to provide guidance for IRS employees, they are also useful to small business owners and tax professionals who prepare returns for audit.
ATGs explain industry-specific examination techniques and include common, as well as, unique industry issues, business practices and terminology. Guidance is also provided on the examination of income, interview techniques and evaluation of evidence. So they may be helpful for business and tax planning purposes.
3. Be Honest.
If you are audited by IRS, lying to the IRS can trigger heavy fines and even a criminal referral. But do not divulge too much information either, as that can open an investigation also. If you know you have potential criminal issue, hire an experience Tax Attorney with experience with criminal representation. Knowing what to say, and what not to say, is a fine line with the IRS. If the IRS asks to record the audit, that is a serious warning sign.
4. Get Help.
You can be represented by a tax professional who has experience in IRS audits and processes, a Certified Public Accountant (CPA), Certified Tax Resolution Specialist (CTRS), an Enrolled Agent (EA) or better yet, all. Your representation should have the experience and know how to walk that fine line!
The IRS has a 90% conviction rate for those charged with a tax crime. If you think that you may be at risk for criminal investigation, be sure to speak to a experienced criminal tax attorney and no one else before going any further. Why? The IRS can subpoena other tax professionals in criminal matters and force them to tell the IRS what you told them.
5. Be Organized.
You must perform a pre-audit, using the audit guide(s) and other materials to prepare for the audit. You'll have more credibility if you can quickly answer questions and produce the documentation that you know your will be asked for. If you are not full prepared, request a postponement. The first meeting sets the tone for the rest of the audit. If you are not ready for that first interview, postpone and get ready!
6. Stick to the Topic.
Whether you are answering a question or responding to a request for supporting documentation, when audited by IRS, ONLY give the IRS what it requests or answer ONLY what is asked. You will not win favor with the auditor.
Sometimes auditors are very stern and straight forward. Those are not the auditor you should fear. The auditor to fear is the one that will attempt to become “buddy". It is a smart tactic for an audit to behave in a way to make you feel more comfortable. That way you, perhaps, will share more information than you should.
7. Take Notes.
Keep track of the examiner's questions and your answers. It is our advice that even though you have the right to, you should not record your meetings for a number of reasons; 1) You will likely be branded as difficult, 2) You may be branded as a Tax Protestor, 3) It may wind up backfiring and hanging you. It is your right to record the proceeding, however, to protect the IRS, they are directed by the Department of Justice (DOJ) to also record. You must notify the IRS in advance that you would like to record the proceedings. If you pull out a recorder and start recording, the IRS will STOP the proceedings IMMEDIATELY. Remember that your recording is also subject to subpoena.
8. Be Courteous.
Don't be hostile. If you are branded as "difficult," you may hurt your chances of success,
9. Consider an Appeal.
If you disagree with the auditor's findings, you might first try talking to the auditor supervisor. You also can send a protest letter to the IRS Office of Appeals within 30 days of receiving the report. This appeal will be reviewed by an Appeals Officer. Appeals Officers typically have been with the IRS for a very long time and likely a top-notch professional. It is our experience that the IRS Office of Appeals has some of the best and brightest in the IRS.
10. Consider Tax Court.
If you do not agree with the IRS Office of Appeals findings, you can consider going to Tax Court. The number one factor in determining your tax court case succeeds or fails is how well you developed your case administratively. If you follow the above steps precisely and calmly, your tax court petition will have the most favorable chance of prevailing. Remember you are stepping up to a much higher level in Tax Court. You will be facing experience IRS Counsel in US Tax Court. IRS will not move forward with a tax court case unless they believe they will be successful. Petitioning the US Tax Court with a weak or no case is dangerous, and likely will be very expensive. Do not call their bluff unless you have the ammunition. They have nothing to lose, but you do!
If you are facing an audit and feeling overwhelmed, contact us. We can help. We have successfully represented thousands of clients in front of the IRS. Call us at 855-829-5877 or [email protected].
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