Key Takeaways
- An IRS audit and appeals lawyer can help taxpayers respond to an IRS audit, dispute proposed adjustments, and pursue eligible appeals.
- The IRS conducts three traditional types of audits: correspondence, office, and field audits.
- Common audit issues include unreported income, questioned deductions and credits, business expenses, cryptocurrency, foreign income, and payroll taxes.
- Taxpayers who disagree with eligible IRS audit findings may be able to appeal through the IRS Independent Office of Appeals.
- An IRS appeal generally requires taxpayers to identify the disputed issues, provide supporting documentation, and submit their request within the applicable deadline.
- Tax disputes and tax resolution are different: an audit lawyer focuses on challenging what the IRS says a taxpayer owes, while a tax resolution professional helps address an established tax liability.
An IRS audit is a review of a taxpayer’s return to determine whether the reported information is accurate and complies with tax laws. Receiving an audit notice does not necessarily mean a taxpayer made a mistake or will owe additional taxes.
The IRS may examine returns because of discrepancies, unusually large deductions, complex transactions, business activity, investment income, cryptocurrency, or other items requiring clarification. Common audit areas include income, deductions, tax credits, business expenses, filing status, and investment transactions.
An audit may result in no changes, additional tax plus penalties and interest, or a refund. Providing accurate records and documentation can help support the information reported on the return.
What Is an IRS Audit and Appeals Lawyer?
An IRS audit and appeals lawyer is a tax attorney who helps taxpayers address disputes with the IRS involving examinations, proposed tax adjustments, and eligible appeals. Depending on the circumstances, an attorney may help before, during, or after an IRS audit.
What Does an IRS Audit Lawyer Do?
An IRS audit lawyer can help a taxpayer understand what the IRS is examining and develop an appropriate response. This may involve reviewing the taxpayer’s return, analyzing the issues identified by the IRS, gathering supporting documentation, and communicating with IRS personnel.
For example, suppose a self-employed taxpayer reported $100,000 of business income and claimed $40,000 in business expenses. During an audit, the IRS questions $15,000 of those deductions. An audit lawyer could review the taxpayer’s records, determine which expenses are adequately supported, research the applicable tax rules, and help present the taxpayer’s position to the IRS.
An IRS audit lawyer may also represent the taxpayer during meetings or other interactions with the IRS. Representation can be especially useful when an examination involves multiple tax years, significant potential liability, complicated business transactions, or questions concerning the interpretation of tax law.
What Does an IRS Appeals Lawyer Do?
An IRS appeals lawyer helps taxpayers challenge IRS determinations they believe are incorrect. The lawyer may review the examination report, identify disagreements involving facts or tax law, prepare an appeal request, and present the taxpayer’s position during an Appeals conference.
The IRS says taxpayers considering an appeal generally should have received correspondence explaining their appeal rights, should disagree with the IRS’s decision, and should not have signed an agreement accepting the determination.
An appeals lawyer’s job is not simply to tell the IRS that the taxpayer disagrees. A well-prepared appeal should identify the specific issues in dispute and support the taxpayer’s position with relevant facts, documentation, and applicable tax law.
Is an IRS Audit Lawyer the Same as a Tax Attorney?
The terms can overlap. A tax attorney is a lawyer who focuses on tax law, while an IRS audit lawyer or IRS appeals lawyer generally describes a tax attorney handling a particular type of IRS dispute.
Other tax professionals, including certified public accountants and enrolled agents, may also represent taxpayers before the IRS when they meet the applicable requirements. The appropriate professional depends on the complexity of the issue and the type of assistance the taxpayer needs.
Why Does the IRS Conduct Tax Audits?
The IRS conducts audits to determine whether information reported on a tax return is accurate and complies with federal tax laws. Being selected for an audit does not necessarily mean the taxpayer did anything wrong.
The IRS may examine returns because of discrepancies with third-party information, unusually large deductions, complex transactions, business activity, investment income, cryptocurrency, foreign accounts, or other items that require clarification. Common audit areas include income, deductions, tax credits, business expenses, filing status, and investment transactions.
An audit also does not automatically mean that a taxpayer will owe money. The IRS may make no changes, assess additional tax plus applicable penalties and interest, or, in some cases, issue a refund. Providing accurate records and documentation can help support the information reported on the return.
What Are the Different Types of IRS Audits?
The IRS can conduct an examination in different ways depending on the nature and complexity of the tax issues involved. The three traditional types of IRS audits are correspondence audits, office audits, and field audits.
Correspondence Audit
A correspondence audit is generally conducted through the mail. The IRS sends a notice explaining the items it wants to examine and requests supporting documentation.
For example, the IRS may question a tax credit and ask the taxpayer to provide records establishing eligibility. The taxpayer generally responds by submitting the requested documentation according to the instructions and deadline in the IRS notice.
Correspondence audits are often narrower in scope than in-person examinations. However, taxpayers should still take them seriously. A correspondence examination can potentially expand when the IRS identifies additional issues or does not receive adequate information.
Office Audit
An office audit takes place at an IRS office. The taxpayer may be asked to provide records and answer questions concerning specific items on the tax return.
An office audit can involve more discussion than a correspondence audit because the taxpayer or representative may meet directly with an IRS examiner. The documents and questions involved will depend on the issues under examination.
Field Audit
A field audit is generally a more comprehensive examination conducted at a taxpayer’s home, business, or representative’s office. The IRS describes field audits as in-person examinations that may involve reviewing books, records, and other information.
Field audits can be particularly important for businesses and taxpayers with complicated financial circumstances. An IRS revenue agent may examine multiple aspects of a taxpayer’s financial records and potentially expand the examination if additional issues arise.
How an IRS Audit Lawyer Can Help With Each Type
The need for professional representation depends on the facts of the case. A taxpayer may be comfortable handling a straightforward correspondence audit independently, while a complex field examination involving a business, multiple tax years, or substantial potential liability may warrant professional assistance.
An IRS audit and appeals lawyer can also help a taxpayer understand what information is relevant, organize supporting evidence, and communicate with the IRS in a way that addresses the specific issues under examination.
What Should You Do If You Receive an IRS Audit Notice?
Receiving an IRS audit notice does not mean you should panic, but it does mean you should pay close attention to the notice and its deadlines. Understanding what the IRS is asking for is the first step toward determining how to respond.
Read the IRS Notice Carefully
Start by identifying the tax year being examined and the specific items the IRS wants to review. The notice should explain what information is being requested, where to send it, and when the response is due.
Taxpayers should also look for information explaining their rights and any available appeal procedures. Different IRS notices can have different requirements and deadlines, so taxpayers should not assume that one procedure applies to every audit.
Gather Supporting Documents
The documentation needed will depend on the issues being examined. A taxpayer whose business expenses are being questioned may need invoices, receipts, bank statements, mileage records, and other business records. Someone whose charitable contributions are being examined may need donation receipts and other records establishing the contribution.
The goal should be to provide documentation that directly addresses the IRS’s questions rather than sending large quantities of unrelated information.
Respond by the Deadline
Ignoring an IRS audit notice can make the situation more difficult. If the IRS does not receive the requested information, it may make a determination using the information available to it.
If a taxpayer cannot meet the deadline or needs clarification, the taxpayer should review the notice for instructions about contacting the IRS. Depending on the circumstances, professional assistance may also be appropriate.
Consider Whether You Need Professional Representation
Professional representation may be worth considering if the audit involves substantial potential tax liability, complicated tax law, multiple years, a business, disputed deductions, or potential fraud concerns.
An IRS audit and appeals lawyer can also help a taxpayer understand what the IRS is asking before responding, which can be particularly valuable when the issues are complicated or the taxpayer is uncertain about how the requested information affects the case.
What Issues Can an IRS Audit and Appeals Lawyer Help With?
An IRS audit and appeals lawyer may assist with a wide range of tax disputes, particularly when a taxpayer disagrees with how the IRS has applied the law or interpreted the facts.
Unreported or Underreported Income
The IRS may question whether a taxpayer reported all income reflected on third-party information returns.
For example, imagine that a taxpayer reports $75,000 of income but the IRS receives Forms 1099 showing $85,000. The discrepancy may cause the IRS to ask the taxpayer to explain the difference.
There can be legitimate reasons for an apparent discrepancy. Income could have been reported on another part of the return, an information return could contain an error, or the same transaction could have been reported more than once. Documentation can help explain the difference.
Questioned Tax Deductions and Credits
The IRS may disallow deductions or credits if the taxpayer cannot substantiate them or does not meet the applicable requirements.
A taxpayer may have grounds to challenge the adjustment if the IRS misunderstood the facts or incorrectly applied the tax law.
For example, if the IRS disallows a business deduction because it believes the expense was personal, the taxpayer may be able to provide records demonstrating the expense’s business purpose.
Self-Employment and Business Expenses
Business tax returns can involve numerous deductions and accounting records. An audit may examine whether expenses were legitimate business expenses, whether they were adequately documented, and whether personal expenses were improperly deducted.
Business owners may also face questions concerning income reporting, worker classification, payroll taxes, depreciation, inventory, or other tax issues.
Cryptocurrency Transactions
Digital asset transactions can create complicated reporting issues involving sales, exchanges, income, basis, and other tax considerations. Records from multiple exchanges may also need to be reconciled.
A taxpayer who receives an IRS notice concerning digital asset transactions should carefully review the records involved rather than assuming the IRS’s calculation is necessarily correct or incorrect.
Foreign Income and Financial Accounts
International tax matters can involve additional reporting requirements. These cases can become particularly complicated when taxpayers have foreign financial accounts, investments, businesses, or income.
Because international tax rules can carry significant reporting requirements and potential penalties, taxpayers facing an audit involving foreign assets or income may benefit from specialized tax advice.
Payroll and Employment Tax Issues
Businesses may face examinations involving worker classification, payroll taxes, withholding, or other employment tax matters.
For example, an IRS examination could question whether workers were properly classified as employees or independent contractors. The consequences of an incorrect classification can extend beyond a single tax return.
Tax Fraud or Potential Tax Evasion Concerns
An audit can raise serious concerns when the IRS believes tax information was intentionally falsified or income was deliberately concealed. However, an honest mistake and intentional tax fraud are not the same thing.
If an audit involves potential civil fraud or criminal tax exposure, taxpayers should consider obtaining qualified legal advice before making substantive statements to the IRS.
What Happens After an IRS Audit?
Once the IRS completes an examination, it will generally provide documentation explaining the results or any proposed adjustments. The outcome depends on whether the IRS agrees with the taxpayer’s return.
An audit may result in no changes, meaning the IRS accepts the return as filed. It may also result in additional tax, along with applicable interest and penalties. In some cases, an audit can even result in a refund.
If the taxpayer disagrees with the IRS’s findings, they may have the right to appeal the determination through the IRS Independent Office of Appeals. This provides eligible taxpayers with an opportunity to present their position and supporting evidence to an Appeals officer who is separate from the IRS function that made the original determination.
Can You Appeal an IRS Audit?
Yes. Taxpayers may be able to appeal certain IRS audit findings if they disagree with the decision and received a notice explaining their appeal rights. An appeal may address disputed issues such as income, deductions, credits, penalties, or other examination adjustments.
Not every IRS notice qualifies for an appeal. Appeals is generally not the appropriate option for a bill without appeal rights or when the taxpayer agrees with the tax owed but simply cannot afford to pay it. In those cases, the issue is typically one of tax collection, rather than a dispute over the IRS’s findings.
How Does the IRS Appeals Process Work?
The IRS Appeals process gives eligible taxpayers an opportunity to have a disputed IRS determination reviewed separately from the IRS function that made the initial decision. Appeals seeks to resolve disputes fairly and impartially without requiring litigation when possible.
Step 1: Review the IRS Examination Findings
Start by identifying every issue with which you disagree. Review the examination report, notice, proposed adjustments, and supporting documentation.
Rather than approaching an appeal as a general disagreement with the IRS, break the dispute into specific issues. Determine what the IRS concluded, why it reached that conclusion, and what evidence or tax law supports a different result.
Step 2: Determine Whether You Have Grounds for an Appeal
The taxpayer should determine whether the IRS correspondence provides appeal rights and whether the disagreement involves an issue that Appeals can consider.
The IRS recommends being prepared to explain whether the disagreement involves the law, the facts, or both. Taxpayers should also organize records and evidence supporting their position.
Step 3: Submit Your Appeal Request
Eligible taxpayers generally must submit their appeal request in writing according to the instructions provided by the IRS. For audits where the disputed tax, penalty, and interest is $25,000 or less per tax period, taxpayers can generally use a simplified “Small Case Request” — a brief written statement — instead of a formal protest. Above that amount, a formal written protest is required. Either way, the request must be filed within the deadline stated in the IRS letter, which is typically 30 days.
Taxpayers generally should not send their initial appeal request directly to the Independent Office of Appeals. Instead, the IRS instructs them to send it to the office identified in the correspondence explaining their appeal rights. That office will first consider whether it can resolve the disputed issues and, if not, forward the case to Appeals.
One exception: if you’re appealing on behalf of a partnership, S corporation, exempt organization, or an employee benefit plan, you must file a formal written protest no matter how small the dollar amount is. The $25,000 Small Case Request option isn’t available for these entity types.
Step 4: Prepare Supporting Documentation and Arguments
Documentation can be critical to an IRS appeal. For example, suppose the IRS disallowed $20,000 in business deductions because it determined that the taxpayer did not have adequate records. The taxpayer may be able to support the deductions with invoices, receipts, bank statements, contracts, mileage records, and other documentation.
The taxpayer should organize the evidence around the specific issues being disputed. A clear explanation connecting the documents to the relevant tax issue can make the position easier to evaluate.
Step 5: Work With the IRS Independent Office of Appeals
The IRS Independent Office of Appeals operates separately from the IRS Examination and Collection functions. Its purpose is to provide an independent review of eligible tax disputes.
Appeals conferences are generally informal and can be conducted by telephone, video conference, correspondence, or in person. The Appeals officer considers the taxpayer’s position, the IRS’s position, the facts, and the applicable law.
Taxpayers may represent themselves or have an authorized professional represent them. The IRS identifies attorneys, CPAs, and enrolled agents among the professionals who may represent taxpayers before Appeals.
Step 6: Negotiate a Resolution
An appeal is not necessarily limited to an all-or-nothing result. Appeals may consider the strengths and weaknesses of the positions presented by both sides and, when appropriate, consider settlement options.
For example, if the facts or legal authority leave room for reasonable disagreement, the parties may be able to resolve the dispute without proceeding to court.
However, taxpayers should not assume that an appeal automatically reduces their tax liability. The outcome depends on the facts, documentation, applicable law, and arguments presented.
Step 7: Receive the Appeals Decision
The appeal may result in the IRS position being upheld, the taxpayer’s position being accepted, or a compromise being reached. Taxpayers generally have the right to receive a written response regarding the Office of Appeals’ decision.
What Happens If You Disagree With the IRS Appeals Decision?
If an IRS Appeals conference does not resolve the dispute, a taxpayer may be able to challenge the matter in U.S. Tax Court or another appropriate court. Because tax litigation involves strict rules and deadlines, taxpayers should carefully review their IRS notices and consider seeking professional guidance.
IRS Audit and Appeals Lawyer vs. Tax Resolution Professional
An important distinction is that disputing a tax liability and resolving a tax liability are not always the same thing.
What an IRS Audit Lawyer Handles
An IRS audit lawyer generally focuses on questions such as whether the tax return is correct, whether the IRS calculated the tax correctly, whether a deduction was improperly denied, whether the IRS misunderstood the facts, and whether the taxpayer has grounds to appeal. The primary focus is the underlying tax dispute.
What a Tax Resolution Professional Handles
Tax resolution generally focuses on how an established tax liability can be addressed. For example, a taxpayer who agrees that they owe $40,000 but cannot afford to pay the full balance immediately may need assistance exploring an installment agreement, Offer in Compromise, Currently Not Collectible status, penalty relief, or another applicable collection option. The appropriate solution depends on the taxpayer’s financial circumstances and eligibility.
When Tax Resolution May Be Necessary After an Audit
Consider a taxpayer who is audited and ultimately agrees that $50,000 in additional tax is owed. At that point, the taxpayer may no longer be disputing whether the tax is correct. Instead, the question becomes how to address the resulting liability.
That is a different issue from an audit appeal. Taxpayers should therefore distinguish between challenging what the IRS says they owe and finding an appropriate way to resolve an amount they owe.
How Optima Tax Relief Can Help With IRS Tax Problems
Optima Tax Relief can help taxpayers understand their IRS tax situation, respond to tax issues, and explore potential resolution options. Depending on eligibility, these may include an Offer in Compromise, installment agreement, penalty abatement, or Currently Not Collectible status.
If an audit results in tax debt that a taxpayer cannot afford to pay in full, the focus may shift from disputing the liability to resolving the balance. Optima can help taxpayers evaluate their options and work toward addressing outstanding IRS tax debt.
Frequently Asked Questions
What Does an IRS Audit Lawyer Do?
An IRS audit lawyer helps taxpayers respond to IRS examinations. Depending on the case, the lawyer may review the tax return, analyze the IRS’s position, gather documentation, communicate with the IRS, and represent the taxpayer during the examination.
Can a Lawyer Stop an IRS Audit?
Hiring a lawyer does not automatically stop an IRS audit. An attorney can represent the taxpayer and help address the issues being examined, but the IRS may continue an examination when it has authority to do so.
Can I Appeal an IRS Audit?
You may be able to appeal an IRS audit determination if you disagree with the findings and the IRS notice provides appeal rights. The appropriate procedure depends on the type of determination and the applicable IRS rules.
Tax Help for People Who Owe
An IRS audit can be intimidating, but taxpayers have rights and options throughout the process. An audit does not automatically mean a taxpayer did something wrong or owes additional tax. If the IRS proposes changes, taxpayers should review the findings carefully and determine whether they agree. Eligible taxpayers who disagree may be able to request review through the IRS Independent Office of Appeals.
Understanding the difference between responding to an audit, appealing an IRS determination, and resolving an established tax debt is important. For complicated audits, significant tax liabilities, or disputed IRS findings, an IRS audit and appeals lawyer or other qualified tax professional may help taxpayers understand their options and determine the appropriate next steps. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
If You Need Tax Help, Contact Us Today for a Free Consultation.
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