All taxpayers in the United States are subject to potential investigation by the IRS. Each year, the IRS processes almost 240 million federal income tax returns and conducts audits on around 1 million of these. The IRS chooses some audits by random selection and others that are triggered by questionable filing or suspected tax evasion.
There are certain things that you should not say during an IRS audit to prevent self-incrimination, avoid payment of high fines, and limit your level of culpability. You may be inclined to give more information than necessary, say nothing to the revenue agent, or simply not reply to an audit notice. However, the most important thing to do during IRS audits is to seek legal representation.
An experienced tax lawyer that has a deep understanding of tax laws and IRS requirements can help guide you through the audit process. They can check whether your tax return was comprehensive, advise you on your legal rights, help you provide added tax return information if necessary, prevent any penalties, and help avoid any tax liability on your behalf.
Ronald Arthur Stearns Sr. PLLC
Ronald Arthur Stearns Sr. PLLC has what it takes to ensure that you get a positive outcome in an IRS tax audit. He has been helping Texas taxpayers with audits, litigation, wage garnishment, and all tax-related issues for over 26 years. He has received recognition from the American Bar Association and the State Bar of Texas, and he has the skills necessary to help your case.
When coming up against the IRS, you need to have a strong legal representative by your side. Ronald Arthur Stearns has handled hundreds of audits and he knows how to communicate with IRS employees to ensure that your case is handled fairly.
If you need help navigating through the IRS audit process, contact our law firm today at 210-853-2135.
What Are IRS Audits?
All American citizens are required to file a tax return annually, both as an individual and if they own a business. When you submit a tax return to the IRS, your submission goes through a computer screening to check for irregularities or suspicious activity, such as unreported income.
If your tax return pops up in the system as suspicious, an IRS auditor may contact you requesting additional documentation to support the information you gave in the tax return. They may also contact you if your tax returns involve issues with other businesses or taxpayers that have been selected for an audit.
In most cases, the IRS office will be satisfied with the supporting documents once they can prove that your tax returns were valid. If there were any irregularities, they may request you to make changes. The IRS will always notify taxpayers by mail if they are subject to an audit. Depending on your situation, the entire audit may be conducted through mail or you may be called in for an office audit.
In addition to targeted searches, the IRS office also conducts random audits on American taxpayers. Most audits do not result in any serious consequences. However, even if you believe that your tax returns are correct, we recommend seeking legal counsel to guide you through the audit. There is still a risk of facing criminal or civil charges for tax evasion or tax fraud.
Why Have I Been Selected For an Audit?
If you have not been chosen for an audit at random, you have been chosen because something does not add up in your tax return, or there is something suspicious in your accounts. In most cases, the IRS simply requires additional documentation to support your taxes. However, if certain red flags arouse suspicion of tax fraud or violations of laws, then you may have to go to a tax court.
Some reasons you may have been selected for an IRS audit include:
Under-Reported Income
When filing a tax return, you are required to be honest about your taxable income each year. The IRS can cross reference your W-2 and 1099 forms with your return to ensure that you are including the total figure of your income. If you under-report your income, you could be charged with tax evasion.
You should take extra caution if you have extra work aside from your primary role, if you moved jobs during the tax year, if you generated income through investments, or if you made gains on cryptocurrency holdings.
Losses or Large Deductions
The IRS may have selected you for an audit if your business suffered from major losses or if you took large deductions, particularly if the deductions are much higher than what would be expected of those in the same industry. If your business suffered losses on multiple tax years, the IRS may want to examine your expenses further.
Claiming Tax Relief That You Are Not Entitled To
Business and individual taxpayers may recover tax relief through schemes such as the American Opportunity Tax Credit (AOTC) and the Earned Income Tax Credit (EITC). Tax relief may also be given for charitable deductions or charitable donations. However, it is important to ensure that you are entitled to recover this tax relief before claiming it. The IRS may conduct an audit if they believe you claimed tax relief that you were not entitled to.
Refundable Tax Credits
The IRS often audits those from a lower-income background who benefit from refundable tax credits. They may audit you to check if you are entitled to recover these tax credits and whether you have claimed excess credits.
Miscalculating Federal Tax Liability
You could be subject to an audit if you or your tax preparer miscalculated your federal tax liability. It is important to always ensure that your tax liability is correct, including tax deductions, capital gains tax, total income reported, retirement fund distributions, state and local tax refunds, and unemployment payments.
If an IRS agent determines that you miscalculated your federal tax liability and owe money, you will be subject to additional interests and penalties, even if your accountant miscalculated.
What Should I Not Say in an IRS Audit?
There can be potentially severe consequences resulting from a tax audit, which is why it is important to take extra precautions when you receive a notice for an audit through the mail. There are certain things that you should not say or do to avoid incriminating yourself or giving information that harms your case.
Do Not Panic
When you receive a notice for an audit through the mail, you will probably be worried about what may happen and panic. Over 90% of cases that get audited result in a change, however, if you have an experienced lawyer by your side, they can help you prepare for the audit and prevent a change from occurring.
With the guidance of an experienced tax professional, you will be prepared to deal with any questions that the IRS asks you. The first thing you should do when you receive an audit notice is to call a tax lawyer to help guide you through the process.
Do Not Lie
The worst thing you can do during an audit is to lie or give false or misleading information. This includes providing false documentation, making excuses for a substantial error made in your tax return, or lying about a source of income.
You may feel the need to make up an excuse for something that doesn’t add up on your tax return, however, it is strongly advised that you remain honest. The best way to do this is by having your lawyers or tax professionals do the talking for you.
Do Not Ignore an Audit
Many people are tempted to ignore a notice of audit that they receive in the mail, hoping that it will go away or won’t be pursued. However, IRS revenue agents are quite persistent, and if you have been selected for an audit, they will go through with the process. As such, it is vital that you respond to the audit, as failure to do so could cause automatic changes, penalties, and further inspection.
If you receive notice for an audit from IRS revenue agents, seek help from tax attorneys or tax professionals. You should then gather the documentation that has been requested by IRS examiners and send it to them by the time stated in the notice. Ensure not to include any extra information or send the documentation late. An attorney can help ensure that you sent the correct information and that all documents are submitted on time.
Do Not Lose Your Temper
Although you may feel annoyed that you are under IRS scrutiny and that your taxes are being looked at, it is important to never lose your temper with an IRS revenue agent. This means not raising your voice, misleading them, making accusatory statements, questioning their capabilities, or losing your temper.
An auditor, just like anyone, is trying to do their job, and they will not take kindly to a person who treats them unfairly. The auditor’s manager has likely placed pressure on them and they could put you under extra scrutiny if they believe you are being defensive about your taxes. They may try to encourage you to say things you would not usually say and try to get more information out of you.
You should always respond to their questions calmly, with help from a tax expert or lawyer, and with a short and clear response. Doing so will likely result in a better outcome for your case.
Potential Tax Audit Results
There are several potential audit results, depending on the circumstances of your case and whether your taxes are in order. If an IRS manager determines everything is ok, you will not have to do anything. However, in the majority of cases, the IRS makes a determination that there need to be some changes made, even if they are minor.
Some potential outcomes from your audit include:
Settlement or Installment Agreement
Many people unintentionally miscalculate expenses or underpay tax liability, often self-employed people or those who have real estate or other investments. If your underpayment was unintentional, your lawyer can try to negotiate an installment agreement or a settlement. This may include monthly payments or an offer in compromise, which is settling the debt for less than what is owed.
Civil Liability for Tax, Penalties, and Interest
Depending on the skills of your attorney and how much you underpaid, the IRS may be unwilling to negotiate a settlement or installment agreement. In these cases, you may have to pay back what you owe, which could include additional penalties and interest. In cases where you do not have the funds to pay back the debt, or when you disagree with the IRS findings, your lawyer can try to appeal the decision on your behalf.
Criminal or Civil Investigation for Tax Evasion or Tax Fraud
The IRS can initiate a criminal or civil investigation against you for suspected tax evasion or tax fraud. A criminal tax investigation carries with it severe consequences, and you could be faced with criminal penalties, including time in prison, huge fines, and a permanent criminal record.
If you are subject to criminal investigations, it is vital that you contact a tax lawyer with experience in litigation. Ronald Arthur Stearns Sr. PLLC has helped multiple clients fight against criminal and civil charges in tax court, and he has the skills necessary to ensure a positive outcome in your case.
Is There a Statute of Limitations on Audits?
The statute of limitations for an IRS audit is three years. This means that the IRS can include the past three years of taxes in an audit. If they want to include a previous year in this audit, they have to request you to extend the statute of limitations.
There are some exceptions to this limit, however. If you omit over 25% of the income reported in your tax return, the IRS has six years to assess additional tax and conduct an audit.
Additionally, they may also conduct an audit and assess additional tax within six years if there is income related to an undisclosed foreign bank or a foreign income of more than $5,000.
If you filed a fraudulent or false tax return, the IRS can conduct an audit indefinitely.
An experienced tax lawyer can help ensure that the IRS does not extend the statute of limitations in your case. The IRS must provide compelling reasons to extend the statute and if they do not have evidence proving their reasoning, they will be unable to do so.
Do I Need a Tax Professional?
If you receive a notice for an IRS audit in the mail, it is strongly recommended that you seek professional legal help. It is possible to do it alone, however; you run an enormous risk of facing penalties or tax changes without professional help.
An experienced lawyer can help you by analyzing your case, taking the necessary steps to reduce your tax obligations, gathering documentation on your behalf, and fighting any accusations made against you.
If you are unable to pay back the tax that you owe, they can help set up a plan that is in your best interests. They can also help prevent you or your business from going into financial distress due to taxes and ensure that you can pay back taxes you owe on your own terms.
If you are facing civil or criminal penalties, a lawyer will fight tooth and nail to reduce the penalties or get the charges dismissed altogether. They will build a powerful argument on your behalf to ensure that you are not found liable for tax fraud or evasion.
By hiring a tax professional to represent your case, you are taking steps to ensure that your best interests are protected. The IRS has a team of employees that are trained to catch people for mismanaging their taxes. The only way to fight against this effectively is by having your own skilled representative by your side.
Contact Tax Attorney Ronald Arthur Stearns Sr. PLLC Today!
Getting selected for an IRS audit is a major deal, and may only happen to you once in your life. There are certain factors that can make a taxpayer more likely to be subject to an audit, such as a higher income level, offshore taxes, or repeated major losses. Regardless of why you were selected for an audit, however, you should do everything you can to ensure a positive outcome, including hiring an experienced tax attorney.
Ronald Arthur Stearns Sr. PLLC has been helping Texas taxpayers manage IRS audits for over 26 years, and he has a deep understanding of how the process works. He can advise you on how to pass an audit with no changes, ensure that you do not face any additional penalties, and help you get your documents in order.
When it comes to the IRS, you need to ensure that your best interests are protected, as they are thorough in their exams. With Ronald Arthur Stearns Sr. PLLC you do not need to worry about facing further scrutiny, as he will handle all matters on your behalf. Our law firm prioritizes the attorney-client relationship, and we work hard to ensure a positive outcome in all tax and litigation cases.
Call us today to schedule a consultation at 210-853-2135.