Do I Need a Tax Attorney if I am Being Audited by the IRS?

If the IRS sends you a letter informing you it will conduct an income tax audit, you face official, federal procedures involving your wealth and money, whether modest or great. IRS Revenue Agents conduct audits. They are trained professionals deputized to assess additional taxes, interest, and penalties against you or your business, assuming the facts and circumstances for the audit period warrant assessments.

How you respond to an IRS Revenue Agent is usually crucial. You must cooperate with the Agent, but the law does not require you to share information the Agent does not ask for. Usually, the more information the Agent has access to, the more information the Agent asks about, and consequently, the more tax return reporting issues come into focus. Depending on how close attention you pay to your tax reporting, you could be anticipating problematical tax issues, on the one hand, or be blind-sided by unexpected tax issues raised by the Agent, on the other hand, or somewhere in between. How objective or well-informed is your judgment?

Further, you can write or speak to the IRS Agent at the beginning of the audit to understand what tax issues or areas the Agent may be particularly interested in, potentially limiting the scope of the audit. But should you be doing this alone, or will you be better off if you are represented by a trained professional?

How the IRS Audits You?

The IRS conducts audits using several means. The main types of audits are as follows:

• Correspondence audits: The IRS believes they found one or more discrepancies on your tax return and want further support for your return positions. That support is usually factual, which technically is a matter of substantiated, credible evidence, but often involves an interpretation of tax laws as well.  
• Office audits: You are told to physically come to the IRS office to meet with an auditor bringing with your information the IRS had asked you for in advance. 
• Field audits: These are the most intensive types of tax audits where all tax reporting positions are open to question.  The Revenue Agent may want to come to your home or office to meet with you, ask questions and physically inspect your records in hard copy or digital forms. The Revenue Agent will also be sending you one or more Information Document Requests (IDRs) to which you must timely respond or ask for reasonable time extensions to comply. There will be a follow-up. The Agent will usually send you an official report of proposed examination changes. Sometimes, there occurs a “no changes” field audit.

These types of audits are serious as a practical matter because the IRS is the most powerful federal government agency around and regularly directs its attention to U.S. citizens and residents. The IRS also has a huge storehouse of relevant and institutional knowledge. What seems like minor audit issues can become much larger depending on what the IRS focuses on and what it finds out from you.

You Can Make Mistakes Trying to Respond to the Audit on Your Own

The IRS likes to see your information presented in an organized, “crisp” fashion. If an Agent has to try to piece together your information, they will make things harder on you, not out of spite but because she is trained to be exacting. The most effective way to respond to the IRS is by providing timely requested information but not anything additional. You may panic if you have not dealt with an IRS audit before. You could even end up admitting to something that the IRS would consider to be tax fraud.

The federal tax laws are complex. There are hundreds of sections in the Internal Revenue Code. Since approximately 1981, Congress has made significant, sometimes substantial, changes every two-year Congressional term, such as most recently regarding the extensive Tax Cuts and Jobs Act of 2017.

The Treasury Department had issued thousands of pages of regulations. On top of that, there is an extensive body of IRS guidance and federal court opinions. Not unusual to tax audits is a Revenue Agent, with or without hidden back-up by subject matter or industry specialists, interpreting the tax law incorrectly or too aggressively asserting that the tax law applies in a particular way to facts that are unclear or ambiguous.  

Without a tax attorney as your authorized representative (IRS Form 2848), you may agree to an IRS proposed tax assessment, including the imposition of an extra 20 percent of the tax assessment as an “inaccuracy related” penalty and always interest on top of both the tax and the penalty, regardless of whether they follow their procedures or read the law correctly. Of course, sometimes, paying the full boat is the least wrong outcome in the end.

You have the right to negotiate with the IRS during the audit procedure, but only reasonably. In gray areas, whether factual or legal or a mix of both, the Revenue Agent and the IRS Audit Group Manager may be prepared to accept less than they suggest or formally propose later in the audit.  

Their job is to assess and collect the correct amount of taxes that should have been shown on your filed tax return and impose tax penalties for not doing so in the first place. In more recent years, added to their job is Congressional emphasis on imposing tax penalties for failures to timely file “tax information returns” that do not involve the computation and payment of taxes, but rather provide the IRS with tax matters information Agents used to get by auditing. Congress has legislated information returns in the hundreds since 1996. 

How a Tax Attorney Can Help You?

When you hire an experienced tax attorney, here are some of the things they can do for you:

• Communicate with the IRS to define the scope of the audit.
• Work with the agency to potentially limit the audit’s scope.
• Assist you in preparing your response to the IRS and the information that they requested.
• Defend you when the agency claims that your return violated federal tax laws or regulations.
• Tax your case to Tax Court if the agency gives you a tax assessment and penalties.

Herold Law, P.A. has ably represented clients involved in federal and state tax audits for nearly 40 years. Call Robert S. Schwartz or Joseph M. Lemond at 908-679-5011 or complete an online form to schedule an initial consultation.

• Category: Tax