When performing the audit, the IRS will ask to see receipts, invoices, records, credit card statements, canceled checks, and other documents. During this process, the IRS checks to see if you accurately stated your income and expenses on your income tax return. If the IRS isn't satisfied with the information you provide, or if certain items aren't reconciled, you may decide to expand the categories being audited. Keeping up with the IRS tax code is a full-time job.
The tax code is more than 1,700 pages long, and even if you had all the time in the world, it's unlikely that you would read the entire document from start to finish and understand all the nuances. If you don't agree with the IRS Office of Appeals, you can take your matter to a federal tax court. It's important to work with an attorney when you go to court. You are expected to present specific documents and evidence and to make a point at the hearings.
A tax lawyer can guide you through this process. One of the most worrying aspects of a tax audit is being overwhelmed by the terminology and procedures used. A tax lawyer can be your interpreter and explain to you what the auditor needs and the procedures that will be carried out. As a specialist in tax law, your lawyer can also detect when an auditor may be further analyzing your tax return for possible criminal intent.
This knowledge can be very valuable if the auditor seeks to file a criminal charge against you. The most common one for individuals and small business owners is the 566-T letter, notifying you that your income tax return is being audited and that the IRS needs several supporting documents from you. This is probably your first audit as a small business owner, and you're not sure exactly what happens during an IRS audit. The length of the audit depends on how complicated your tax return and business are, whether you challenge the result, and how many other audits the agent is managing.
When someone has a power of attorney for you, the IRS takes their word as its own, so it's important that it's reliable, reputable, and insured. The IRS notification must confirm whether the audit is being conducted by correspondence (by mail) or in person. If you don't agree with the decisions made by the IRS agent in the examination report, you can appeal the results of the audit to the IRS Office of Appeals. Rather than facing an audit on your own, it's often a good idea to have an IRS audit lawyer.
The chances of someone being audited are extremely low, but business owners should be very careful about it and take steps to avoid any cause for concern for the IRS. The most harmless type of audit is one where the IRS simply wants to verify something and needs supporting documentation. Your lawyer can discuss the pros and cons of a field audit compared to an office audit and advise you accordingly. An experienced IRS tax lawyer knows how to interact with IRS revenue agents, when to comply, and when to fight back to protect their rights and prevent the audit from spreading to additional types of taxes and additional tax years.
You can also use the IRS Directory of Federal Tax Return Preparers with select credentials and qualifications to help you find tax professionals in your area who currently hold professional credentials recognized by the IRS. No one can represent you before the IRS until you file Form 2848, which gives them a power of attorney to do so.
