FAQs: IRS & Tax Audits

I recently received a letter from the IRS informing me that my tax return has been selected for a tax audit. What should I do?

      Audit means an examination. During a tax audit, an IRS revenue officer will scrutinize your tax return(s) for any inaccuracies. One of the most frequent subjects of a tax audit is whether certain tax deductions were properly taken. Another issue that often comes up is the sources of income. For example, a retired taxpayer may have claimed that his sole source of income is his pension distributions. During an audit, the revenue officer will review the bank statements of the taxpayer to see if there were deposits made that did not relate to such pension distributions.

      The most important factor in surviving a tax audit is preparation. Before inviting you to attend a tax audit, the revenue officer in charge of conducting the audit has thoroughly reviewed your tax returns and is prepared to question you on the items that he or she considers suspicious. Lack of preparation in dealing with such questions will cost you dearly. If your answers do not convince the IRS revenue officer, other tax years besides the one under audit may be opened and become subject to the examination.

      Occasionally, taxpayers ask a tax attorney to begin representing them when they have already attended a tax audit alone or with their accountant. Such taxpayers have typically provided the IRS with various types of information about their sources of income, expenses and other tax-related documents. Unfortunately, almost always what has been provided to the government ends up being used against such taxpayers at a later date. Therefore, it is extremely important to retain a competent tax lawyer before communicating with the IRS once you learn that your tax return has been selected for a tax audit.

      Tax audits, sometimes but not very often, end in the issuance of a "no change letter" by the IRS. A "no change letter" means that the IRS accepts the tax return as originally submitted to the IRS. In all other occasions, the IRS proposes to revise the tax return and to assess higher taxes than those shown on the tax return. You may either agree with such changes, or present your arguments as to why such changes are inappropriate. These arguments should be grounded in statutory and case law governing the disputed items. If the IRS disagrees with your arguments, you may appeal your case within the IRS. If your appeal is unsuccessful, you may have the option to petition the U.S. Tax Court.

      If you have been contacted by the IRS regarding a tax audit, you should consult a competent tax attorney. A tax lawyer will help you identify the likely issues that usually come up during an audit. An experienced IRS tax attorney is in the best position to help you navigate the unpredictable twists and turns of a tax audit and arrive at the most favorable resolution of your tax problems.