The Benefits of Hiring a Tax Lawyer for Guidance in a Civil Tax Audit
Even with limited budget resources, the Internal Revenue Service (“IRS”) and state tax agencies continue to enforce compliance with the tax laws through their audit process, as our Hanover, MD tax audit lawyer can explain. During the 2019 fiscal year, the IRS recommended a total of over $30 billion in additional tax and related adjustments through its audit mechanism. Of this amount, more than $17 billion arose from field audits and correspondence audits. Furthermore, of the approximately 202,000 returns that were examined in field audits, nearly $14 billion in adjustments were proposed. That equates to an average adjustment of nearly $75,000 per return. Since many field audits result in the examination of multiple returns, that means that the average taxpayer selected for audit ended up with a six-figure tax bill after an audit.
Accordingly, the financial stakes associated with a civil tax audit can be severe and, in some cases, put a taxpayer on the brink of bankruptcy. Even where a taxpayer has made a good faith attempt to comply with the tax laws, significant financial consequences can result. For other taxpayers that have knowingly or deliberately attempted to underreport and/or mislead the IRS, criminal consequences can result from an audit. The IRS frequently identifies badges of fraud associated with erroneous tax filings and, where appropriate, will refer a case to the Department of Justice for prosecution. Taxpayers have been, and will continue to be, incarcerated for tax fraud. Taxpayers faced with an audit should strongly consider obtaining representation, if for nothing else than to ensure that their rights are upheld and to ensure they do not dig themselves into a deeper hole. With counsel, a taxpayer will at least understand the nature of the beast and can avoid unnecessary pitfalls that might escalate the matter.
Crepeau Mourges understands the potential risks and penalties that can result from a civil tax audit. We use our experience and knowledge to benefit our clients by minimizing the risk of an expanded and lengthy civil audit, by advocating to keep matters from turning criminal, and, where necessary, by pursuing administrative appeal rights and litigation. We also work to position matters in a way that considers other remedial options of a taxpayer, such as collection alternatives (e.g., Offers in Compromise, innocent spouse relief, and installment agreements).
The Audit Process
Not all audits are created equal. The IRS generally conducts the following types of audits: correspondence audits, desk audits, and field audits. Correspondence audits are usually less invasive and may involve a simple mismatch of information or a minor omission on a tax return. By providing necessary documentation, these audits may be capable of resolution with little headache to a taxpayer. On the other hand, in a field audit, a revenue agent will explore one or more potential problem areas on a return. These audits frequently last for months and, in some cases, may last for more than a year. The IRS will engage in informal discovery to obtain books and records, can use its administrative summons authority to obtain financial records and other information, may interview taxpayers, and may perform a site visit. These tax audits can be intrusive and may involve complex legal issues.
While field audits vary in scope, there are many commonalities between them. The IRS is required to follow procedural requirements and afford taxpayers their statutory rights. Taxpayers have the right to legal representation. Taxpayers have a right a right to be informed. Taxpayers have a right to have their position heard and to appeal a decision in an independent forum. Taxpayers also have the right to pay no more than the correct amount of tax. Taxpayers have other important rights as well and should be properly advised of these rights.
Unfortunately, some revenue agents take a personal dislike to certain taxpayers and may skirt these rights. It is not uncommon for a revenue agent to propose significant deficiencies merely because they can. In their opinion, if an issue exists with this approach, it can be resolved in the Office of Appeals. While these types of issues may eventually be sorted out, taxpayers can end up losing precious time and resources. An advocate experienced with IRS tax audits can help to ensure that this does not occur.
Once the revenue agent has assembled all of the necessary documentation and information from a taxpayer, they will analyze the facts and law and render a proposed adjustment. Many taxpayers are shocked when they receive this report, as it appears that they owe substantial additional taxes. But all is not lost. Even once a taxpayer receives an adjustment report, a taxpayer has the opportunity to work with the revenue agent and their manager. Providing additional documentation or explanations may reduce the proposed adjustment and may produce an agreed-upon result. Advocacy by a tax audit lawyer in Hanover, MD can increase the odds of that happening. Moreover, an advocate will explain available appeal rights to their client and can position a case for a more favorable result in the Office of Appeals or United States Tax Court.
The tax lawyers at Crepeau Mourges have successfully handled many civil tax audits. We advocate for our clients’ rights and ensure that they are upheld. Through proper explanation of these issues and with our ability to elevate a case to management, appeals, or litigation, we believe that revenue agents are more willing to conduct an audit on fair terms and will propose adjustments that do not require needless additional disputes. We ensure that you are heard, understand the outcome, and will answer any questions you may have.
What Can Happen During a Tax Audit
During an audit, taxpayers should prepare and plan for worst case scenarios. Revenue agents are your adversary and seek to enforce the tax laws and ensure compliance in problem areas. They will request information from taxpayers and the onus is on the business or individual to provide factual and legal support for positions taken on their return. If a position is not properly documented and explained, a revenue agent will take a position favorable to the IRS and propose an adjustment to the tax return. If not challenged, this can result in substantial additional amounts being owed by an individual or business.
Furthermore, if an audit tends to show that negligence or fraud played a part in the preparation of the return, a revenue agent will propose the assessment of significant taxes and penalties. In some situations, penalties can be a large part of the proposed deficiency. In other situations, the revenue agent will refer the matter to a Fraud Technical Advisor to determine if criminal tax fraud has occurred. If not addressed properly, situations can quickly go from bad to worse. Aside from civil and criminal penalties, many other problems can arise. If proper procedures are followed by a revenue agent, an audit of income taxes could lead to a separate audit of other types of taxes (e.g., excise taxes or employment taxes). Revenue agents may even attempt to contact family members or other third parties (e.g., employers, banks, etc.) in order to verify information. Revenue agents may create detailed schedules regarding deposits and income that could be used to support later adjustments. And the result of an IRS tax audit can be compounded when the report of the IRS is disseminated to a state or local tax authority. Although there is not much good that can come from an audit (occasionally a refund may result), the negative possibilities are seemingly endless. It is important to have a seasoned tax attorney like those at Crepeau Mourges on your side in order to plan for and explain all of these potential outcomes.
How Crepeau Mourges Can Benefit You in a Tax Audit
There are many reasons to have a veteran tax lawyer at Crepeau Mourges on your side if selected for an audit. Although a tax attorney can be expensive, the cost of not having a tax attorney is frequently greater. We will review your tax returns and any relevant issues and prepare you for the battle to come. We will put the matter into context, explain your options, address collateral consequences, and plan to avoid any future issues. We will deal with IRS revenue agents for you and will handle all communications. This helps to ease the fear and stress associated with the process. We will ensure that you put your best foot forward and all helpful facts and law are considered by the revenue agent. We will advocate for you and attempt to limit any civil or criminal penalties. With extensive experience related to tax appeals, tax litigation, tax collections, and state tax matters, the advisors at Crepeau Mourges are prepared to see the matter through from start to finish and will employ all available strategies to resolve the situation favorably for you. Call the tax audit lawyers in Hanover, MD at Crepeau Mourges today to see how we can help you minimize the impact of an IRS tax audit.
