Tax Law Blog | IRS Tax Attorneys

The Revenue Agent’s report is not binding. You may appeal the decision at a number of levels. This may be done before the Agent’s manager, before an Appeals’ officer, and before the US Tax Court.

The ability to access these venues is limited due to the timetables involved. Make sure you stay one step ahead of the deadlines to respond so rights are not lost.
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Contact Kenneth Sheppard, National Tax Attorney.

The traditional view of an IRS tax audit is a face-to-face contact with an IRS auditor. About one-third of IRS “tax audits” are in the form of letters asking for explanations of various tax items on a tax return or supporting documentation. If you receive a tax audit letter from the IRS, examine your records to determine the nature of the tax audit issue. The IRS may want to audit the entire tax return or could audit just a portion of it, for example, meals and entertainment or automobile and travel expenses.

If the issue concerns documenting a tax deduction or a tax credit, send the IRS copies of the appropriate documents. Do not send the IRS originals, as they may get lost in the mail or at the IRS. If the tax notice concerns your entitlement to a tax deduction or questions a tax position taken on the tax return, consult your tax advisor before responding to the IRS. A satisfactory explanation can end the matter quickly. In any event, it is important to respond to the IRS in writing.

If only a portion of the tax return is to be audited by the IRS you should  bring only those tax records pertaining to that part of the tax return being audited by the IRS. A full tax audit will request all tax return information for that tax year.

IRS tax audits are often prompted by large business losses over a period of several years, raising the question of how the owner made a living during that time. Large tax deductions for travel, entertainment and automobile expenses that don’t appear to relate to the company’s sales volume also can trigger an IRS tax audit. Only about 2% of small businesses’ tax returns are audited by the IRS nationwide.

There is also a Taxpayer Compliance Measurement Program (TCMP) IRS tax audit, which is the most thorough of all IRS tax audits. Persons selected for TCMP tax audits must verify all data on their tax return. This information could include birth certificates for children, a marriage license for a spouse, and complete documentation of all tax deductions taken on the tax return.

To prepare for the IRS tax audit, a business owner needs to recall the events of that business tax year, who was employed by the company at that time, and any problems encountered that tax year. The best way to prepare for any IRS tax audit is to do a good job of record keeping during the tax year prior to filing  your tax return. Then, if the tax return is selected for an IRS tax audit, the tax information needed to answer the IRS agent’s questions will be at hand.

As soon as notification of an IRS tax audit is received, contact the tax adviser who prepared your tax return. He or she can explain the IRS tax audit process and help you prepare for the IRS tax audit.

If you are audited by the IRS or are subject to an IRS tax collection procedure, you have a number of rights.

At the end of the IRS tax audit, the IRS agent will cite any problems with the tax return.

After the IRS agent informally advises you of any tax adjustments needed on the tax return a formal report is filed.

If you owe money on one tax issue and the IRS owes money on another tax issue, the two tax  amounts can be netted. In a small number of tax cases, the IRS tax audit results in a tax refund for the taxpayer.

If the IRS agent’s tax decision is unsatisfactory, you can appeal to the IRS agent’s supervisor, the Appeals Division of the IRS, and if necessary, the U.S. Tax Court.

The most general definition of an audit is an evaluation of a person, organization, system, process, project or product. Audits are performed to ascertain the validity and reliability of information, and also provide an assessment of a system’s internal control. The goal of an audit is to the person/organization/system etc. under evaluation based on work done on a test basis. Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements - a concept influenced by both quantitative and qualitative factors.

Traditionally audits were mainly associated with gaining information about financial systems and the financial records of a company or a business (see financial audit). However recently auditing has begun to include other information about the system, such as information about environmental performance. As a result there are now professions that conduct environmental audits.

In financial accounting, an audit is an independent assessment of the fairness by which a company’s financial statements are presented by its management. It is performed by competent, independent and objective person or persons, known as auditors or accountants, who then issue an auditor’s report on the results of the audit.

Such systems must adhere to generally accepted standards set by governing bodies that regulate businesses. It simply provides assurance for third parties or external users that such statements present ‘fairly’ a company’s financial condition and results of operations.

1.an official examination and verification of accounts and records, esp. of financial accounts.

If you receive an audit notice from the IRS, it is very important that you know the rules and even more important to let the IRS know you are not an uninformed taxpayer. The more rights you assert, the better off you will be. You begin to assert those rights by being the one to establish the ground rules of an audit. Here are three ground rules right now.

1. You have the right to conduct the audit at a time and place that is convenient to you. Use this right to prepare and avoid being caught off guard.
2. You have the right to record an audit as long as you give the IRS the same right. Using this right prevents the IRS from changing the rules midway through the audit.
3. You have the right to limit the scope of the audit to avoid time and trouble discussing issues not relevant to your tax liability.
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