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Every tax authority has the power to audit selected returns. The use of audits
maintain tax payment compliance. Take all audits seriously, questions and
disclosures can lead to more questions and more challenges. Also, in regard to
business taxes, many liabilities can be assigned to the individual owners and other
people who involved with the management or operation of the business or who
served as advisors or investors. So, you'll want to consider getting us involved as
early as you can.
If you are being audited by the IRS, State or local tax authority we can help
represent you during your audit. This is particularly true where errors exist or where
questions about preparer error or challenges to decisions made by the preparer exist
1) Income Tax Audits.
2) Single Business Tax Audits
3) Sales, Use Tax Audits (see below)
4) Employment Tax Audits
5) Heavy Vehicle Road Tax Audits
6) Fuel Tax Audits
7) Excise Tax Audits
8) Federal Estate and Gift Tax Audits
Common Audit Targets (this is not exhaustive):
1) Specific vocations and businesses
3) Returns with entries significantly at odds with what is expected
4) Employers who have shifted workers to independent contractor status
5) Cash based businesses
6) Taxpayers who have not filed returns
General discussion about audits, particularly IRS audits:
Auditors are highly trained primarily to find two things:
1) Additional revenue for the government, and
2) Crime.
If you are audited you must first understand how the audit fits within the many
procedural rights that you have. They apply at the time the IRS examines your return
and also when/if it asserts says you owe additional tax. Assuming you meet all
requirements and conditions you ultimately have the right to present your case in the
U.S. Tax Court. But prior to that you have many procedural rights which you can use
to address inaccuracies.
In other words, while the auditor has significant authority to gather facts and
information about your finances and your tax return, and while he or she may want
you to perceive him or her as being the final word on what you owe or don’t owe, you
actually have significant rights during and after the audit to challenge if you disagree.
However, it is up to you to know, understand, and properly exercise your rights.
“The more you know, the less you will pay.
The less you know, the more you will pay.”
We routinely have taxpayers, return preparers as well as accountants who come to
us complaining that they just received an audit report from the IRS and were shocked
that it is much worse than what they expected. We are commonly told they were
surprised because the auditor “seemed like a nice guy.”
Auditors are highly trained to pursue their goals and will be well organized and
focused at your first meeting with them. The vast majority of IRS examination agents
are professional and cordial in their demeanor, yet many taxpayers mistakenly think
their audit meeting is “conversational” when nothing could be further from the truth.
That’s not to say there is an ulterior improper purpose. But it does mean every
taxpayer must not lose sight of the reality that the agent, though cordial, is engaging
a calculated course of action to examine your return to discover if additional tax is
due or whether other wrongs exist.
This is important, because the stresses of the experience are such and some
taxpayers are so anxiety ridden about the audit that they misconstrue an agent’s
pleasant demeanor to mean (s)he will exercise his/her judgment on audit issues
arbitrarily in favor of the taxpayer - that the agent will go softer on them. Yet, nothing
can be further from audit reality. The stresses are beyond what most people are
used to or can tolerate. Amongst auditors and investigators stories abound about
how people just started spewing information during a time when nothing was being
asked and when the auditors and/or investigators were just sitting still for what felt to
the taxpayer to have been a prolonged period. Then later on reflection it became
clear that the information was not only very important and negative and important but
that it was something which probably would not have been otherwise uncovered or
the subject of questioning.
Just because the auditor does not directly challenge taxpayers face to face during
the meeting, doesn’t mean the decision will be in the taxpayer’s favor. Aside from the
fact that most auditors, as people would prefer to be pleasant, in reality many
auditors have been known to use the smoother approach to disarm the taxpayer,
fostering the possibility that more information will be provided. Generally an auditing
agent will perceive little benefit from directly challenging the taxpayer on documents
that are submitted at the meeting. It is far easier for the agent to request documents
and, once they are provided (or not provided) he will perform the substance of his
examination alone in his office. The auditor will kindly listen to the taxpayer but his
focus will be on making sure his file is properly documented with written requests for
the information he seeks and, as he receives it, he will be working on his“report”
during this time.
Auditors by nature and training are observant people. As for audits that take place
at a residence or place of business, you just best accept that the auditor has an
opportunity to walk away with far more information than what meets the taxpayer’s
eye. This is particularly true if they meet you at your home, cottage, business or
offices.
Before an auditor even notifies you of the audit, you can bet (s)he has reviewed your
file and formulated a specific plan as to how to go about examining your return.
Specific areas and issues will be initially targeted and (s)he will be highly prepared
for the first meeting with you.
You have the right to be represented in an audit. Not every audit requires a
representative, but when in doubt you should consider this important issue and at
least get the proverbial second opinion.
You also have the right to be represented by someone other than the person who
prepared your tax return.
The agent’s “report” is the document that is generated at the conclusion of the
audit. It is, in essence, the IRS’s assertion of what adjustments should be made to
your tax return(s), whether additional tax is owed, whether you should be penalized,
and how much is due if additional tax is found.
Caution: If you had someone else prepare your return and your return is audited,
beware of having the person who drafted the return represent you in the audit if the
audit relates to possible mistakes made on the return. There is a potential for a
conflict of interest.
Consider the following:
1) Gather all your information and documents in a thorough manner. Then
consider whether you should have a representative and, if so, whether you should
choose someone other than the person who prepared the return.
2) Any time the IRS raises the issue of fraud, you must say nothing, provide
nothing, and immediately engage an experienced tax controversy attorney.
3) If the agent issues a Summons, consider whether you should have us review
it. Summonses involve legal rights and carry very short deadlines to challenge
them. This needs to be considered even if you have an accountant or prepare
present during your audit.
4) Always be civil and professional during the audit.
5) Always put facts that you believe are important and/or which support your
position in writing to the agent. The agent must pay attention to documents that are
in his file.
6) If you fail to provide information on an issue the agent has raised, it is likely
the agent will decide that issue against you.
7) Calendar and meet all deadlines requested by the IRS in providing
information and documents. If you cannot meet a deadline, call the agent in advance
to request more time and confirm the extension in writing to the agent.
8) Keep copies of all documents you provide to the IRS. Note when you
provided specific documents and to what you were responding. Use cover letters too.
9) Be thorough in all information you provide. Be prepared to have to do
significant “leg work” to provide details that the IRS requests.
10) If and IRS manager attends an audit meeting, ask for an explanation of why
the manager is present. For instance, managers must be present in all audit
meetings with the taxpayer when fraud is an issue in the audit.
11) Ask the agent what issues he sees in the returns and ask him regularly for
his thoughts and preliminary conclusions on the issues involved.
12) Ask the agent what documents or information would help in establishing your
position on each disputed issue.
Hot Button: Of course, if you were not honest or accurate when completing your
return, or weren’t during any conversations during the audit, or in your other
submissions, or if you feel or are told you were not honest, or if you were told you
should be investigated for not being honest in any regard, you must immediately stop
communicating with the IRS and its representatives and seek the advice and counsel
of an experienced tax controversy criminal defense attorney so your rights and
interest, both procedurally and substantively are secured.
As stated, the “report” is not the final word on your audit if you disagree with any of
its findings. You have the right to request a managerial conference regarding the
report and, if that does not resolve the matter, you have the right to appeal the
findings in the report to the IRS Office of Appeals.
Do not hesitate to appeal the findings in a report if you believe the IRS has not
decided one or more of the issues properly. The IRS Office of Appeals has a
different mission than the examination agent’s office in that Appeals is charged with
the duty of resolving your case while examination is generally focused on the above
two goals.
You must appeal within the time frame set by the letter that accompanies the report.
If you are one day late the IRS will deny your appeal.
If you do not appeal, or if your case is not resolved in appeals, the IRS must then
issue you a Notice of Deficiency, also known as a “90 day letter.” The Notice of
Deficiency is the final notice the IRS must give you before its proposed adjustments
would ripen into an actual tax assessment upon which the IRS can collect. It provides
you with the right to file a petition in the U.S. Tax Court. If you are at that stage and
believe you need to enforce your rights in court, you must immediately engage an
experienced tax controversy attorney.
If you do not timely respond to a Notice of Deficiency, the IRS’s proposed
adjustments will become an actual tax assessment upon which the IRS can collect.
maintain tax payment compliance. Take all audits seriously, questions and
disclosures can lead to more questions and more challenges. Also, in regard to
business taxes, many liabilities can be assigned to the individual owners and other
people who involved with the management or operation of the business or who
served as advisors or investors. So, you'll want to consider getting us involved as
early as you can.
If you are being audited by the IRS, State or local tax authority we can help
represent you during your audit. This is particularly true where errors exist or where
questions about preparer error or challenges to decisions made by the preparer exist
1) Income Tax Audits.
2) Single Business Tax Audits
3) Sales, Use Tax Audits (see below)
4) Employment Tax Audits
5) Heavy Vehicle Road Tax Audits
6) Fuel Tax Audits
7) Excise Tax Audits
8) Federal Estate and Gift Tax Audits
Common Audit Targets (this is not exhaustive):
1) Specific vocations and businesses
3) Returns with entries significantly at odds with what is expected
4) Employers who have shifted workers to independent contractor status
5) Cash based businesses
6) Taxpayers who have not filed returns
General discussion about audits, particularly IRS audits:
Auditors are highly trained primarily to find two things:
1) Additional revenue for the government, and
2) Crime.
If you are audited you must first understand how the audit fits within the many
procedural rights that you have. They apply at the time the IRS examines your return
and also when/if it asserts says you owe additional tax. Assuming you meet all
requirements and conditions you ultimately have the right to present your case in the
U.S. Tax Court. But prior to that you have many procedural rights which you can use
to address inaccuracies.
In other words, while the auditor has significant authority to gather facts and
information about your finances and your tax return, and while he or she may want
you to perceive him or her as being the final word on what you owe or don’t owe, you
actually have significant rights during and after the audit to challenge if you disagree.
However, it is up to you to know, understand, and properly exercise your rights.
“The more you know, the less you will pay.
The less you know, the more you will pay.”
We routinely have taxpayers, return preparers as well as accountants who come to
us complaining that they just received an audit report from the IRS and were shocked
that it is much worse than what they expected. We are commonly told they were
surprised because the auditor “seemed like a nice guy.”
Auditors are highly trained to pursue their goals and will be well organized and
focused at your first meeting with them. The vast majority of IRS examination agents
are professional and cordial in their demeanor, yet many taxpayers mistakenly think
their audit meeting is “conversational” when nothing could be further from the truth.
That’s not to say there is an ulterior improper purpose. But it does mean every
taxpayer must not lose sight of the reality that the agent, though cordial, is engaging
a calculated course of action to examine your return to discover if additional tax is
due or whether other wrongs exist.
This is important, because the stresses of the experience are such and some
taxpayers are so anxiety ridden about the audit that they misconstrue an agent’s
pleasant demeanor to mean (s)he will exercise his/her judgment on audit issues
arbitrarily in favor of the taxpayer - that the agent will go softer on them. Yet, nothing
can be further from audit reality. The stresses are beyond what most people are
used to or can tolerate. Amongst auditors and investigators stories abound about
how people just started spewing information during a time when nothing was being
asked and when the auditors and/or investigators were just sitting still for what felt to
the taxpayer to have been a prolonged period. Then later on reflection it became
clear that the information was not only very important and negative and important but
that it was something which probably would not have been otherwise uncovered or
the subject of questioning.
Just because the auditor does not directly challenge taxpayers face to face during
the meeting, doesn’t mean the decision will be in the taxpayer’s favor. Aside from the
fact that most auditors, as people would prefer to be pleasant, in reality many
auditors have been known to use the smoother approach to disarm the taxpayer,
fostering the possibility that more information will be provided. Generally an auditing
agent will perceive little benefit from directly challenging the taxpayer on documents
that are submitted at the meeting. It is far easier for the agent to request documents
and, once they are provided (or not provided) he will perform the substance of his
examination alone in his office. The auditor will kindly listen to the taxpayer but his
focus will be on making sure his file is properly documented with written requests for
the information he seeks and, as he receives it, he will be working on his“report”
during this time.
Auditors by nature and training are observant people. As for audits that take place
at a residence or place of business, you just best accept that the auditor has an
opportunity to walk away with far more information than what meets the taxpayer’s
eye. This is particularly true if they meet you at your home, cottage, business or
offices.
Before an auditor even notifies you of the audit, you can bet (s)he has reviewed your
file and formulated a specific plan as to how to go about examining your return.
Specific areas and issues will be initially targeted and (s)he will be highly prepared
for the first meeting with you.
You have the right to be represented in an audit. Not every audit requires a
representative, but when in doubt you should consider this important issue and at
least get the proverbial second opinion.
You also have the right to be represented by someone other than the person who
prepared your tax return.
The agent’s “report” is the document that is generated at the conclusion of the
audit. It is, in essence, the IRS’s assertion of what adjustments should be made to
your tax return(s), whether additional tax is owed, whether you should be penalized,
and how much is due if additional tax is found.
Caution: If you had someone else prepare your return and your return is audited,
beware of having the person who drafted the return represent you in the audit if the
audit relates to possible mistakes made on the return. There is a potential for a
conflict of interest.
Consider the following:
1) Gather all your information and documents in a thorough manner. Then
consider whether you should have a representative and, if so, whether you should
choose someone other than the person who prepared the return.
2) Any time the IRS raises the issue of fraud, you must say nothing, provide
nothing, and immediately engage an experienced tax controversy attorney.
3) If the agent issues a Summons, consider whether you should have us review
it. Summonses involve legal rights and carry very short deadlines to challenge
them. This needs to be considered even if you have an accountant or prepare
present during your audit.
4) Always be civil and professional during the audit.
5) Always put facts that you believe are important and/or which support your
position in writing to the agent. The agent must pay attention to documents that are
in his file.
6) If you fail to provide information on an issue the agent has raised, it is likely
the agent will decide that issue against you.
7) Calendar and meet all deadlines requested by the IRS in providing
information and documents. If you cannot meet a deadline, call the agent in advance
to request more time and confirm the extension in writing to the agent.
8) Keep copies of all documents you provide to the IRS. Note when you
provided specific documents and to what you were responding. Use cover letters too.
9) Be thorough in all information you provide. Be prepared to have to do
significant “leg work” to provide details that the IRS requests.
10) If and IRS manager attends an audit meeting, ask for an explanation of why
the manager is present. For instance, managers must be present in all audit
meetings with the taxpayer when fraud is an issue in the audit.
11) Ask the agent what issues he sees in the returns and ask him regularly for
his thoughts and preliminary conclusions on the issues involved.
12) Ask the agent what documents or information would help in establishing your
position on each disputed issue.
Hot Button: Of course, if you were not honest or accurate when completing your
return, or weren’t during any conversations during the audit, or in your other
submissions, or if you feel or are told you were not honest, or if you were told you
should be investigated for not being honest in any regard, you must immediately stop
communicating with the IRS and its representatives and seek the advice and counsel
of an experienced tax controversy criminal defense attorney so your rights and
interest, both procedurally and substantively are secured.
As stated, the “report” is not the final word on your audit if you disagree with any of
its findings. You have the right to request a managerial conference regarding the
report and, if that does not resolve the matter, you have the right to appeal the
findings in the report to the IRS Office of Appeals.
Do not hesitate to appeal the findings in a report if you believe the IRS has not
decided one or more of the issues properly. The IRS Office of Appeals has a
different mission than the examination agent’s office in that Appeals is charged with
the duty of resolving your case while examination is generally focused on the above
two goals.
You must appeal within the time frame set by the letter that accompanies the report.
If you are one day late the IRS will deny your appeal.
If you do not appeal, or if your case is not resolved in appeals, the IRS must then
issue you a Notice of Deficiency, also known as a “90 day letter.” The Notice of
Deficiency is the final notice the IRS must give you before its proposed adjustments
would ripen into an actual tax assessment upon which the IRS can collect. It provides
you with the right to file a petition in the U.S. Tax Court. If you are at that stage and
believe you need to enforce your rights in court, you must immediately engage an
experienced tax controversy attorney.
If you do not timely respond to a Notice of Deficiency, the IRS’s proposed
adjustments will become an actual tax assessment upon which the IRS can collect.
Copyright 2009; Richard Craig Krause.
All rights reserved. Copying and/or use of
the whole or any part of this material
without prior written consent is
prohibited. Taxpayer’s Voice is a federal
registered trademark. Copying and/or use
of the mark without prior written consent is
prohibited. Violators will be prosecuted.
"Tax Crisis," IRS "Black Hole", IRS "Black
Magic," "Taxpayer's Voice Speaks,"
"Snowballing," "Cycle of Destruction," the
theme music, with and without our
Taxpayer's Voice lyrics, and the Armored
Man are also trademarks of Richard Craig
Krause. Copying and/or use of same
without prior written consent is
prohibited. Violators will be prosecuted.
All rights reserved. Copying and/or use of
the whole or any part of this material
without prior written consent is
prohibited. Taxpayer’s Voice is a federal
registered trademark. Copying and/or use
of the mark without prior written consent is
prohibited. Violators will be prosecuted.
"Tax Crisis," IRS "Black Hole", IRS "Black
Magic," "Taxpayer's Voice Speaks,"
"Snowballing," "Cycle of Destruction," the
theme music, with and without our
Taxpayer's Voice lyrics, and the Armored
Man are also trademarks of Richard Craig
Krause. Copying and/or use of same
without prior written consent is
prohibited. Violators will be prosecuted.
Disclaimer.
Issues of the kind generally identified in
this website require expert legal help
which would be devoted to the specific
facts, circumstances and law that present.
Everyone must accept and understand
website does not apply to any specific
matter or person or legal entity, any
applicable burden of proof, which party
has the burden of going forward with
proofs or the administrative or
jurisdictional issue or concern. The
information provided in this website is
superficial and does not attempt to
address any or all possible factual or
identify all the law, conditions or other
requirements that must be met or may
apply to any matter or challenge, in
whole or in part. We are not responsible
for how you may use the information
reflected in this website.
Issues of the kind generally identified in
this website require expert legal help
which would be devoted to the specific
facts, circumstances and law that present.
Everyone must accept and understand
website does not apply to any specific
matter or person or legal entity, any
applicable burden of proof, which party
has the burden of going forward with
proofs or the administrative or
jurisdictional issue or concern. The
information provided in this website is
superficial and does not attempt to
address any or all possible factual or
identify all the law, conditions or other
requirements that must be met or may
apply to any matter or challenge, in
whole or in part. We are not responsible
for how you may use the information
reflected in this website.
| AUDIT REALITIES. 1-800-230-4747 |
Richard Craig Krause & Associates, P.C
| The Taxpayer's Voice |
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