An audit can be a time-consuming process. While you cannot avoid a tax audit, you can minimize your risk of an audit by avoiding potential flags on their tax return. The most frequent IRS audits are caused by inconsistencies or errors in your tax return that raise red flags in the eyes of the IRS.
When you work with Milikowsky Tax Law, you get more than an experienced tax litigation attorney. You get an experienced business and tax advisor who can work with you to reduce your chances of being audited, with our comprehensive tax return assessment system and years of business experience.
California’s Top IRS Audit Attorney
Our leading tax litigation attorney, John Milikowsky, has decades of experience representing countless businesses in legal tax matters. Mr. Milikowsky is dedicated to relentlessly defending his clients in everything from state and federal tax audits to criminal tax investigations. As a full-service tax law firm, we frequently work with business owners to empower owners to identify issues on their own tax returns. While there is no way to guarantee you will avoid a tax audit, we can teach you to significantly minimize your risk of an audit.
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Milikowsky Tax Law Defends Businesses in IRS Audits
When you’re faced with the formidable presence of a tax audit, don’t panic. Reach out to Milikowsky Tax Law, and we will protect your company to keep your business in business. Our skilled tax litigation attorneys will protect your rights every step of the way.
Whether you’ve just received a letter from the IRS, or you need help analyzing your legal rights and financial data reported on your tax returns, contact us today. The team at Milikowsky Tax Law is here to help.
San Diego Tax Attorney – Your Relentless Advocate in IRS Audits
Business owners may not be sure where to start if IRS audits their company. However, an IRS audit doesn’t have to overwhelm your life or impede your ability to conduct business. With the experienced team at Milikwosky Tax Law, you can navigate the process of an IRS audit secure in the knowledge that your tax attorneys are advocating for you every day.
There is little to no margin for error during an audit, a tight timetable, and potentially severe consequences for a poorly handled interaction with IRS. Unlike CPAs who do not have attorney-client privilege, attorneys are able to speak with your IRS officer on your behalf without risk of subpoena or summons of records discussed. A qualified attorney can, review your documents with an expert eye, create the right strategy for you, represent you or your business, and provide valuable advice and guidance.
If you receive a letter from IRS confirming your business tax return has been selected for examination, review your return and identify the items that will likely be investigated so you can be prepared. Then, before communicating with IRS, reach out to an experienced IRS audit attorney. Having a game plan is critical. You want to be honest and prepared when speaking with your IRS revenue agent.
Anytime you file taxes, there is a chance that your tax return might be audited by the Internal Revenue Service (IRS). The agency conducts standard procedures to find any errors or discrepancies among taxpayers. The audit process is meticulous and, should you find yourself under the scrutiny of IRS, will require detailed information from you.
In the article below, you’ll learn about the audit process and frequently asked questions surrounding IRS audits.
Why was I selected for an IRS Audit?
There are different reasons you may be flagged for IRS audits. Some are due to random checks; however, you have a low chance of being audited this way. Most taxpayers have less than a 0.6% chance of receiving a random audit check.
IRS runs tax returns through its Discriminant Information Function (DIF) system to continually update their database and make sure they are tracking industry benchmarks for each industry and tax bracket.
The DIF system also checks for incorrect tax filing information. Any discrepancies in tax forms, such as an imbalance of tax returns, a discrepancy between reported earnings and employer filings, or unreported cash transactions by one member of a transactional party, will trigger DIF to send your return to an IRS audit officer.
People are more susceptible to an audit if they:
- Earn less than $25,000 or more than $500,000
- File incorrect or incomplete returns
- Have large numbers of cash transactions
- Claim a disproportionate number of deductions
- Are self-employed
- Have a home-based business
- Have a cash business
- Have foreign assets
Sometimes you can be audited as a result of your business partners or investors going through an audit.
How Will I Know If I am Selected for an Audit?
You will know if you are selected for an audit if you receive a verified letter in the mail from IRS. They do not call to notify you about your audit.
What Do I Do If I’m selected for an Audit?
If you or your business are selected for an audit, make sure you read all of the information sent to you in your audit notification letter. The letter and accompanying information request packet will notify you as to what entity is being audited (business or personal) what year(s) are under review and who your auditor is. Once you know what IRS needs, make sure you collect all of the records and supporting documentation requested (but nothing additional). You will need to submit records from banks, vendors, and businesses you have worked with, invoices and pay stubs, payroll records, and medical expenses among other information.
Should I Hire an IRS Tax Attorney to Help Me?
We suggest contacting a qualified tax attorney to help guide you through your audit, to ensure you are timely, responsive, compliant, and do not unintentionally increase the scope of your audit to other areas of your business or personal finances that would otherwise remain unscrutinized.. There is little to no margin for error during an audit, a tight timetable, and potentially severe consequences to a poorly handled interaction with IRS. Unlike CPAs who do not have attorney-client privilege, attorneys are able to speak with your IRS officer on your behalf without risk of subpoena or summons of records discussed. A qualified attorney can, review your documents with an expert eye, create the right strategy for you, represent you or your business, and provide valuable advice and guidance.
How long do I have to reply to an IRS audit?
You have 30 days to reply to the initial audit letter. Do not hesitate, and make sure you take the appropriate steps early on. IRS is not likely to provide extensions unless you have a good reason. Your attorney can help by advocating for more time with the IRS agent. A good attorney will know many of your local IRS auditors and have strong relationships built on well-structured prior cases and mutual respect.
How Long Do Audits Take?
The time it takes to conduct an audit depends on the case. It fluctuates depending on:
- The seriousness of the tax reporting error
- When and whether the right information is provided to IRS
- Communication between the person being audited and IRS officer
How Many Years of Tax Returns Can IRS audit?
IRS audits tax returns from the past three years; however, most are from the past two years. Only when IRS agents find discrepancies within the audit they are conducting do they dig for information older than three years. Most audits do not look for information past six years. Though in cases of criminal audits IRS can look back 9 years and longer.
If you or someone you know received an audit letter from IRS, reach out to our expert team at Milikowsky Tax Law. We have over a decade of experience working with IRS and tax audits and are experts in defending business owners in the face of IRS or other government agency audits.
IRS Audits: Common Questions [Part 1: VIDEO]
At Milikowsky Tax Law, we frequently encounter questions from clients about the intricacies of IRS audits. It’s essential to understand the process and the expectations to navigate these situations effectively. Below, John Milikowsky, founder of Milikowsky Tax Law, offers expert advice on common queries regarding IRS audits.
Understanding the Importance of Providing Records
When you receive an IRS audit letter identifying various expenses for examination, it’s crucial to provide the requested records promptly. While substantiating income is essential, particular emphasis should be placed on documenting expenses, including mileage, travel, and cost of goods sold.
Failure to provide records or ignoring the IRS can have serious consequences, potentially resulting in the disallowance of expenses and a higher tax bill.
Addressing Additional Income Discovered by the IRS
In addition to scrutinizing expenses, the IRS may uncover additional income during the audit process. This could occur through bank statements revealing deposits not reported on the tax return. It’s imperative to be prepared to justify any discrepancies and demonstrate why certain deposits should not be considered taxable income.
Effective communication and negotiation with the IRS can help mitigate potential issues and build credibility with the revenue agent.
Providing Substantiation for Expenses
To substantiate expenses, it’s essential to gather and present documentation from third parties, such as invoices and check payments. While accounting system records like profit and loss statements and general ledgers can provide valuable insights, they must be supported by external evidence to validate their accuracy. Emphasizing transparency and distinguishing between business and personal expenses is key to navigating the audit process successfully.
Negotiating and Building Trust with the IRS
Negotiating with the IRS can be a strategic approach to streamline the audit process and focus on key areas of concern. By prioritizing the substantiation of larger expense items and demonstrating cooperation and transparency, businesses can establish credibility and foster trust with the IRS agent.
While spot checks may still occur, proactive engagement and thorough documentation can help facilitate a smoother audit experience.
Answering Common IRS Audit Questions
Facing an IRS audit can be intimidating, but understanding the process and knowing how to address common questions can help alleviate anxiety and ensure a smoother experience. Here are some frequently asked questions related to IRS audits, along with expert insights to guide you through:
1. Do I have to provide all the records requested in the IRS audit letter?
Absolutely. It’s crucial to provide all requested records promptly and thoroughly. While the IRS may initially focus on examining certain expenses, it’s essential to substantiate all aspects of your tax return, including income and deductions. Failure to provide records or ignoring the IRS’s requests can lead to the disallowance of expenses and potentially higher tax liabilities.
2. What if the IRS finds additional income that I didn’t report on my tax return?
If the IRS uncovers additional income during the audit process, such as unreported deposits in your bank statements, it’s essential to address this promptly and transparently. Be prepared to justify any discrepancies and provide documentation to support your claims. Effective communication and negotiation with the IRS can help mitigate potential issues and ensure a fair resolution.
3. How can I substantiate my expenses during an IRS audit?
Substantiating expenses is critical during an IRS audit. Gather and present documentation from third parties, such as invoices, receipts, and canceled checks, to support your claims. While internal records like profit and loss statements can provide insights, they must be corroborated by external evidence to validate their accuracy. Emphasize transparency and distinguish between business and personal expenses to strengthen your case.
4. Can I negotiate with the IRS during the audit process?
Yes, negotiation with the IRS can be a viable strategy to streamline the audit process and address key areas of concern. Prioritize the substantiation of larger expense items and demonstrate cooperation and transparency to build credibility with the IRS agent. While the IRS may still conduct spot checks, proactive engagement and thorough documentation can facilitate a smoother audit experience and potentially lead to a more favorable outcome.
5. What if I’m unsure about certain aspects of my tax return during the audit?
If you’re unsure about certain aspects of your tax return or have questions during the audit process, don’t hesitate to seek professional guidance. Tax attorneys or certified public accountants (CPAs) with expertise in IRS audits can provide valuable insights and assistance, helping you navigate complex tax regulations and achieve the best possible outcome.
Learn More About Milikowsky Tax Law
At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax audits. We’re experts in defending business owners in the face of IRS or other government agency audits.
Interested in learning more? Read on to learn how to respond to an IRS audit.