Law Offices of Maryam M. Golbarg, P.C.
Your Tax Relief Attorney
Tax Solutions
Audit Defense and Audit Reconsideration
What is an Audit?
An IRS audit is the examination of a taxpayer’s account to ensure financial information and the reported amount of tax are reported correctly according to the tax laws. The IRS uses random selection and computer screening as well as related examinations — meaning you may be audited if there are issues or transactions involving other taxpayers such as your business partner or investors — when choosing a tax return to be audited. It is a lengthy and in-depth process and additional information and detailed explanations are generally required. The audit can be expanded to other years, especially if the unrepresented taxpayer does not handle the audit properly.
How Far Back can a Tax Return be Audited?
The IRS generally can include tax returns filed within the last three years in an audit. However, if the IRS finds substantial error (omission of gross income of %25 or more), the IRS may include additional years but usually not more than the last six years. Note that the IRS can audit a tax return at any time if there is fraud.
The IRS may also request extending the statute of limitations for assessment of tax (generally three years after a tax return is due or was filed, whichever is later), especially when an audit is not resolved quickly. Note that you do not have to agree to extend the statute of limitations.
How does the IRS conduct the Audit?
The IRS normally initiates the audit by mail and depending on the situation, the audit will then continue to be by mail or in-person interview. An audit by mail (correspondence audit) usually is a request for additional information about certain items shown on the tax return such as income, expenses, and itemized deductions. This type of audit can be handled through mail, providing the requested documentation. The in-person interview may be at an IRS office (called office audit) or at the taxpayer’s home, place of business, or accountant’s office (called field audit).
When conducting an audit, the IRS typically starts with one year (generally within the last two years). If the audit of that year reveals discrepancies, the IRS often expand the audit to include other years, typically to a total of three years. Otherwise, and if the audit does not reveal any problems, the IRS may close the audit without expanding it to other years.
How Long Does an Audit take?
It depends on the type of audit, the complexity of the issues, the availability of information, the availability of parties for scheduling meetings, and your agreement or disagreement with the IRS findings.
The IRS typically mails an Audit Report (sometimes called an examination report) to you within a few weeks after conducting an audit. This report explains any proposed changes to your tax return. Then the IRS may propose additional tax, penalties and interest, and it may also issue a letter CP3219A, Statutory Notice of Deficiency (usually after issuing Notice CP2000 if the issue is still not resolved). You may still have the opportunity to contest the audit deficiency at the IRS Appeals or in the United States Tax Court.
Audit Reconsideration
An Audit Reconsideration is a process that reopens the IRS audit at the conclusion of an audit, or when the IRS created a tax return (SFR) for you because you did not file your tax return (Substitute for Return). Reasons for a request for an Audit Reconsideration include:
- You have new information regarding your income and expenses;
- You disagree with the tax that the IRS says you owe (in case of an Substitute for Return);
- You never appeared for the audit appointment or sent the IRS your information;
- You moved and never got the IRS’s audit report.
You can’t request an Audit Reconsideration if:
- You’ve already paid the full amount you owe. You still may be able to file an amended tax return and a formal claim for refund with the IRS;
- You previously agreed to pay the amount you owe by signing an agreement such as an IRS Form 906, Closing Agreement, or an offer in compromise agreement;
- The United States Tax Court, or another court, has issued a final determination that you owe the tax.
During an Audit Reconsideration, if granted, you will be given the opportunity to present the necessary documentation to substantiate the items contained on your tax return. If successful, the IRS will abate all or part of the prior audit deficiency, including penalties and interest.
Do I need a Representative?
As you should not risk going to a court without a lawyer, you should not risk representing yourself before the IRS without a knowledgeable tax professional. The IRS audit should be taken seriously to avoid expansion of the audit scope, as the audit can lead to other tax years not originally stated in the audit correspondence. Generally, the cost of representation is far less than the total of tax, penalties and interests that you could be faced without representation.
We have has successfully represented many taxpayers during the IRS audit and limited the years to be audited and has been able to establish the basis for an audit reconsideration in many cases. If you have received notices from the IRS regarding audit of your individual or business accounts or if you are under an audit, please immediately call us for help before providing damaging information to the IRS.
