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.
Failing to File a Tax Return May Trigger IRS to Visit Your Home
Unfiled tax returns are drawing increased attention from the Internal Revenue Service. For many individuals and business owners, the assumption is that if nothing is filed, nothing happens. That is not how the system works. The fact is that failing to file a tax return may trigger an unwanted IRS visit to your home or business.
When tax returns remain unfiled, the IRS has tools to identify the gap, assess exposure, and begin collection activity. In some cases, that process includes direct contact from a revenue officer, including in-person visits.
Understanding how unfiled returns are handled, and what steps to take, can significantly reduce the risk of escalation. See how we support business owners in IRS Audits here: https://www.caltaxadviser.com/practice-areas/irs-audits/
Why the IRS Is Focusing on Unfiled Tax Returns
There has been a shift in IRS enforcement activity. While there has been public discussion around workforce reductions, there has also been active rehiring in key enforcement roles.
These roles include:
This matters because unfiled returns fall directly into both categories. When returns are missing, the IRS is not starting from zero. It is working from third-party reporting and internal data systems.
The result is increased visibility into who has not filed and where enforcement resources are being directed.
What Happens When You Do Not File a Tax Return
The IRS receives income information from third parties such as employers, financial institutions, and other reporting entities. This includes W-2s, 1099s, and other income statements.
When a return is not filed, the IRS can still see:
From there, the IRS can begin its own process to address the missing filings.
In many cases, this leads to notices and requests to file. In more serious situations, it can lead to direct contact from a revenue officer assigned to the case.
IRS Wage and Income Transcripts: The Starting Point
For anyone with unfiled returns, the first step is understanding what income has been reported to the IRS.
This is done through a wage and income transcript.
A wage and income transcript shows:
This document provides a baseline for preparing accurate tax returns. Without it, it is easy to miss income that the IRS already has on record.
Once obtained, the transcript can be used by a CPA or tax professional to prepare and file the necessary returns.
Filing vs. Paying: Why Filing Comes First
A common concern is the inability to pay the tax owed. Many people delay filing because they expect a balance they cannot immediately cover.
From a compliance standpoint, filing and paying are treated differently.
The penalty for not filing is typically:
The penalty for not paying is lower:
This distinction matters.
Filing the return, even without payment, generally reduces overall penalties compared to not filing at all. It also opens the door to resolution options.
Payment Options After Filing
Once returns are filed, several options may be available depending on the situation.
These can include:
The key point is that these options are not available until returns are filed. Filing establishes the liability and allows the process to move forward.
When the IRS Assigns a Revenue Officer
In some cases, the IRS assigns a revenue officer to pursue unfiled returns and unpaid taxes.
This is a field-based role, meaning the officer is local to the taxpayer’s area. Their responsibilities include:
Contact may begin with calls or letters, but it can also escalate.
Revenue officers may:
This type of contact typically occurs after the IRS has identified a significant issue or prolonged noncompliance.
How the IRS Gathers Information
The IRS has broad authority to gather information related to unpaid taxes and unfiled returns.
This can include:
These actions are part of the IRS’s collection authority and do not require the same type of authorization that private creditors would need.
For taxpayers, this means the IRS often has a clear picture of financial activity before initiating direct contact.
Why Delaying Filing Creates More Exposure
Unfiled returns do not remain static. Over time, the situation becomes more complex.
Delays can lead to:
In addition, when returns are eventually filed, the IRS may already have developed its own view of the taxpayer’s income based on third-party reporting.
Addressing the issue earlier allows for more control over how the returns are prepared and presented.
When to Involve a CPA or Tax Attorney
Filing past-due returns requires accurate reporting and a clear understanding of the available options.
A CPA can assist with:
In situations where the balance is significant or there is concern about potential escalation, involving a tax attorney may be appropriate.
This is particularly relevant when:
Addressing these issues with the right level of guidance can help reduce risk and bring the matter back into compliance.
Practical Steps to Take if You Have Unfiled Returns
For individuals and business owners who have not filed, the path forward is structured.
Start with:
Once returns are filed, evaluate payment and resolution options based on the specific situation.
FAQs: Unfiled Tax Returns and IRS Enforcement
Can the IRS really come to my home or business?
Yes. In certain cases, a revenue officer may visit a home or business as part of collection efforts, particularly when there are unfiled returns and unpaid taxes.
What is a wage and income transcript?
It is a record from the IRS showing all income reported by third parties, including W-2s and 1099s. It is used to prepare accurate tax returns.
Should I file if I cannot pay the tax owed?
Yes. Filing reduces penalties compared to not filing and allows access to payment options such as installment agreements.
How far back can I file unfiled returns?
The number of years required depends on the situation, but the IRS typically requires multiple years to bring a taxpayer into compliance.
Can the IRS access my financial information?
The IRS has authority to review financial data related to tax liabilities, including information tied to income reporting and credit.
Hire a Qualified Tax Attorney to Support you In Any IRS or GOvernment Tax Audit
Unfiled tax returns create a situation that tends to move in one direction over time. As enforcement activity increases, the likelihood of contact, including from a revenue officer, becomes more real.
Filing returns is the step that brings the situation back into a controlled process. It establishes clarity around income, defines the liability, and opens the door to resolution options.
Taking action early, with accurate information and proper guidance, allows for a more measured and predictable outcome.