Although audits are exceptionally rare, it’s still a good idea to contact an IRS audit attorney when you are being audited. Tax attorneys in Seattle, Bellevue, Tacoma, Kirkland, and Lynnwood will look out for your best interest when handling your tax case.
How Far Back Can the IRS Audit You?
In general, the IRS will only conduct a tax audit for the last three to six years. The IRS looks at tax returns to assess for any irregularities in your deductions, business expenses, or income.
If the IRS is auditing your tax records as part of a criminal investigation, the IRS will likely go back more than six years to gather enough evidence about your previously filed taxes.
Do You Need an IRS Audit Lawyer for a Tax Audit?
The IRS audit process is understandably very stressful for many taxpayers. For this reason, hiring an IRS audit lawyer to help through the auditing process is the best way to reduce stress and worry about your tax situation.
Key Ways an Experienced Tax Audit Attorney Can Help You
There are several ways an experienced tax audit attorney can help you with your IRS audit. An experienced tax audit lawyer will guide you through the process and represent your interests with the Internal Revenue Service. Contacting a law firm as soon as you receive an IRS letter is the best way to jumpstart your defense.
Understand Tax Law
A tax audit lawyer can help you understand the tax law that may apply to your IRS audit. Even if you don’t go to tax court, a lawyer will provide insight into the specific type of audit the IRS is requesting.
There is a major difference between how personal audits and business-related audits are handled, so it’s also important to reach out for tax audit representation from a lawyer who has experience in the specific type of tax law that will apply to your IRS audit.
When you are undergoing an IRS tax audit, you may need the help of an IRS audit attorney to reconstruct certain documents about your case. Although you should always keep financial and tax documents for at least seven years, some taxpayers do not store tax records, which can make it difficult to provide the IRS with necessary documents.
Some of the main documents that are used by the IRS to determine the tax owed by the taxpayer can include a recent federal tax return, canceled checks, bank documents, and documents for foreign income. If your organization is being audited, an office audit may also require certain documents about expenses.
IRS Tax Audit Representation
An IRS audit lawyer can also help taxpayers create an IRS audit defense, particularly in cases where the taxpayer has a tax liability. Defending clients with a defense strategy may be necessary if the IRS is unwilling to accept certain financial documents or if there is a criminal investigation with criminal charges related to tax evasion.
IRS Settlement and Payment Plans
An experienced IRS audit attorney can help taxpayers identify the best IRS payment plan to pay back taxes after an IRS audit has been completed. Several payment plans can help taxpayers settle directly with the IRS for a lump sum payment or pay back the IRS in monthly installments.
Not all IRS audits will need to be concluded with a payment plan, but if you are required to pay penalties or interests, a lawyer can advise you about how to apply for the appropriate payment plan.
Tax Planning Advice
Finally, taxpayers have legal rights regarding the way they file taxes. In particular, it is the right of the taxpayer to plan tax returns to claim all applicable exemptions and deductions. Whether you are working with a CPA or a tax lawyer, tax planning advice for future taxes can help you avoid an audit in the future.
A CPA or certified public accountant is a crucial resource for taxpayers who earn a high wage or have unique financial situations where claiming deductions can be confusing. However, to avoid an audit in the future, it’s important to understand how to correctly claim these exemptions and deductions, which is something a CPA can help with.
What Does Attorney-Client Privilege Mean?
If you are a taxpayer with legal representation, this means that you benefit from attorney-client privilege when your taxes are examined by the Internal Revenue Service. Attorney-client privilege enables you to discuss your financial situation and bank accounts with your lawyer without this information being part of a criminal investigation about your back taxes.
Typically, this privilege is only necessary if you are undergoing a serious audit or have severe tax debt. If the IRS has filed criminal charges against you for tax fraud, the attorney-client privilege will protect you as your tax audit attorney handles your case.
What Triggers an IRS Audit?
Typically, an IRS audit only happens when calculations made by the IRS have identified major errors or discrepancies in a tax return. These errors can be identified in the return for the current year, which can then prompt the IRS to conduct a tax audit for previous tax returns. Some of the most common triggers for an IRS tax audit include:
The IRS has information about all of your financial accounts and income sources, so when there is a major difference between the IRS records and the tax return you file, this will alert the IRS that income has been unreported.
When the IRS detects that not all income has been reported, this usually means that the IRS will send an IRS audit letter or a request for an amended tax return that includes all income sources.
Foreign income is subject to special reporting requirements under US tax law. Foreign bank accounts, offshore accounts, and other income from foreign sources must be filed with certain forms. Failure to correctly report foreign wages will usually result in an IRS audit and may even have consequences, such as penalties for non-compliance.
The deductions you claim on your personal or business tax return can also be a red flag for the IRS. Although you should always claim as many deductions as you are eligible for, it is against the rules to claim deductions that do not apply to your unique situation.
Some deductions should not be included on a personal or business tax return, such as entertainment expenses and travel deductions for a personal vehicle. If you aren’t sure about any type of deductions you should make, you can always speak with a CPA about the exemptions you are eligible for or how to correctly claim allowable deductions.
Finally, high-wage earners may also be more likely to trigger an IRS audit. For the most part, fewer than 1% of people earning less than $200,000 annually are selected for auditing each tax year.
However, taxpayers who earn more than $200,000 may be selected for an audit as much as 4% more frequently. Earning more than $1 million can raise the likelihood of being subjected to IRS audits to 12%.
Can You Be Randomly Selected for an IRS Tax Audit?
There are times when taxpayers are randomly selected for an audit. These days, tax returns are analyzed by a computer screening as part of the National Research Program conducted by the IRS each year. Statistical formulas sometimes randomly select individuals, even if the tax return is normal.
A tax audit may also be selected for any individual who has had transactions with another taxpayer who is currently being audited.
How Many Tax Audits Can You Have?
As a taxpayer, you can be selected an unlimited number of times for an IRS audit depending on your financial situation, how well you file your tax returns and your annual wages.
What Happens During an IRS Tax Audit?
The IRS tax auditing process involves several steps to ensure the IRS is collecting all relevant information during a tax audit. A tax audit attorney can help you through this process with IRS audit representation, particularly if certain tax laws apply to your income sources.
The first step of an IRS tax audit is an IRS audit letter. Individual filers and organizations will both receive an audit letter in the mail, which will include information about the tax audit that is being conducted.
In general, correspondence audits are the most common types of audit interviews that will be conducted by the IRS. Correspondence audits mean that you are sending relevant documents to the local IRS field office that is overseeing your case.
Typically, IRS agents only conduct field audits for places of business or for individuals who are represented by audit attorneys. If your tax audit is being conducted in person, it’s best to schedule your interview with your tax audit lawyer so your attorney can protect you from tax liability.
After the audit interview, the IRS will review all of the documents you provide for your tax audit. The document review will compare your wages, deductions, and much more.
Confirming the IRS received your documents is a good idea. Instead of contacting local IRS agency locations, you can send your documents to the IRS via certified mail, which will confirm that the IRS has received all of your documents.
The final step of your tax audit is the conclusion determined by the IRS. IRS audit attorneys can give you more insight into what this conclusion means for how you will settle any tax liability you are responsible for.
Types of Conclusions
A “no change” conclusion is when the IRS concludes that there are no changes or penalties for your tax return. An “agreed” conclusion is a tax audit where the IRS proposes changes to your tax return, such as an amendment to claim all income sources.
A “disagreed” conclusion is when the IRS proposes changes, but you disagree. In the case of a disagreed conclusion, you will need a tax attorney to understand the tax law that will help you settle your audit fairly with the IRS.
After the IRS has reached a conclusion and you agree with the audit findings, you will be able to close your case by signing an examination report. The examination report will be filed with the IRS and kept with your personal records.
If the IRS concludes that you owe taxes, you will need to submit forms for the payment plan that is most appropriate for your unique financial situation. An IRS audit attorney can help you file these forms correctly so that you can pay the taxes you owe without accumulating interest or additional penalties.
How Long Do IRS Audits Take?
Sometimes, an IRS audit may take a few weeks, and other times it may take a few months. The speed of your audit process will ultimately depend on the complexity of your case and how well you comply with document requests.
An IRS audit is a serious issue, so hiring tax audit representation to help with your case is a smart idea. An IRS audit lawyer can protect your legal rights. For more information about IRS tax audits, contact Seattle Legal Services, PLLC at 206-536-3152 today.