Running a medical practice is demanding. Between patient care, staffing, and managing operations, most doctors don’t have time to stay on top of the ever-changing rules around payroll, taxes, and compliance. Unfortunately, this leaves many practices exposed to audits from the IRS or California’s EDD.
Milikowsky Tax Law has defended business owners, including physicians and medical practices, since 2009. We’ve seen the same mistakes surface again and again. Trust our experienced attorneys to defend you and your practice in cases of IRS, EDD, CFTB, or other government tax controversies.
Top 5 Mistakes Doctors Make That Trigger Audits
Misclassifying Employees as Independent Contractors: Hiring nurses, assistants, or billing staff as contractors to avoid payroll taxes is a red flag for the EDD.
Not Reporting All Income: Payments from insurance companies, cash, or side consulting arrangements sometimes get left off returns, opening the door to IRS scrutiny.
Improper Deduction of Personal Expenses: Charging family travel, personal vehicles, or home renovations to the practice may look like tax evasion to auditors.
Poor Payroll Tax Compliance: Missing payroll tax deposits or filing errors often trigger EDD and IRS enforcement actions.
Inadequate Record Keeping: Failure to maintain patient billing records, insurance remittances, or expense documentation makes audits harder to defend.
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Case Story: When a Doctor’s Practice Came Under IRS Audit
Dr. S operated a successful private practice with several employees. Unaware of the AB-5 new regulations, she classified part-time nurses and billing staff as independent contractors (1099s). She also deducted family travel expenses tied to a medical conference, thinking that the business portion of the trip qualified the deductions.
The IRS audited her practice and expanded the audit to her personal taxes when she inadvertently sent them more information than what they originally requested. Then EDD followed with its own audit, reclassifying the contractors as employees. Dr. S faced tens of thousands of dollars in back payroll taxes, penalties, and interest as well as back taxes for the disallowed deductions.
Milikowsky Tax Law intervened. We negotiated with both agencies, reduced penalties, and established a compliance plan moving forward. Dr. S kept her practice open and avoided criminal exposure, but the experience was a wake-up call.
Why Doctors Need Experienced Legal Representation in an Audit
Doctors and medical practice owners often feel unprepared when the IRS or EDD initiates an audit. Yet an audit does not have to disrupt your practice or jeopardize your livelihood. With Milikowsky Tax Law, you can face the process with confidence knowing our attorneys are protecting your interests every step of the way.
Audits move quickly, leave little margin for error, and carry serious consequences if handled incorrectly. Unlike CPAs, attorneys maintain attorney–client privilege and can communicate directly with the IRS or EDD on your behalf without risk of subpoena or compelled disclosure. An experienced tax attorney can review your records, build a defense strategy tailored to your practice, and represent you in all dealings with the government.
If you receive a letter from the IRS or EDD, the best first step is to review your records and identify the likely focus of the audit. Before speaking with an auditor, contact an experienced tax attorney. Entering an audit with a clear strategy ensures you stay compliant, prepared, and protected.
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