Audits and Appeals

Both business and individual tax returns can be audited by the federal as well as state authorities. An audit does not necessarily mean that you have made a mistake or that you will owe additional taxes.

What is an audit? The tax authorities routinely scrutinize people’s income tax returns to determine that the tax reported is correct. The IRS has power to inspect any books, papers, records, or other data, which may be relevant to determining the accuracy of any tax return. The Internal Revenue Code §6001 gives the IRS the authority to require any person to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax.

Why is your return being examined? The IRS examines about one percent of all income tax returns. Whether your return is at higher risk for examination depends on the type of your return and the dollar amounts involved. Generally, the IRS selects the tax returns for examination based on the Discriminant Function System (DIF) score, – a mathematical technique used by the IRS to classify income tax returns as to their error potential. Some returns are selected based on information obtained by the IRS through efforts to identify promoters and participants of abusive tax avoidance transactions. 

How is the audit conducted? An examination may be conducted by mail or in-person through an interview and review of the taxpayer’s records. The interview may be at an IRS office or at the taxpayer’s home or place of business.

What do you need to have? The audit notification letter will generally tell you what documents or records are needed. The taxpayers are obligated to maintain records substantiating the accuracy of their return. Businesses are required to maintain books and records to sufficiently establish gross income, deductions and other items shown on the return.

Why do you need legal representation? The tax agency’s biggest advantage in any audit is having an experienced revenue agent going against an inexperienced and worried taxpayer. The auditor can easily take advantage of the taxpayer’s limited knowledge of the tax laws and procedure.

There are a lot of advantages of having an attorney represent you during the audit process. Hiring a tax defense attorney means that you will have the experience, knowledge and determination on your side, and the playing field will be more leveled.

An experienced tax controversy attorney will help you develop the strategy before and during the examination. An attorney will identify your risks at litigation and structure your defense in a way supported by the existing legal authority.

Your tax defense lawyer will ensure that you are getting a fair treatment from the IRS and state tax agencies. Your attorney will attend the audit hearings and negotiate with the auditor on your behalf. Your attorney will keep the auditor in check and make sure that the tax law is applied to your case correctly. In some cases, an attorney can even find additional deductions you may have missed and even get you an additional refund.

You have a right to appeal the audit results. Taxpayers who do not agree with the examination results may appeal by having a conference with the examiner’s manager or appeal their case administratively with the IRS’ Appeals Division. The taxpayer has 30 days to appeal the auditor’s decision preventing the IRS agent from issuing the statutory notice of deficiency.

At San Diego Tax Law Group we pride ourselves on obtaining the best possible audit examination outcome for our clients. We have the tax law expertise, negotiation skills, and experience necessary for your success. We provide audit defense to both individuals and businesses regardless of their size and complexity. If you have received an audit notification from the IRS or the California State authority, contact San Diego Tax Law Group today for your free initial consultation and case assessment.