An IRS Audit is a Serious Matter that Requires Serious Defense Counsel
The Internal Revenue Service (IRS) audits hundreds of thousands of taxpayers every year. It audits companies and individuals, and it targets taxpayers in all income brackets.
When facing an IRS audit, it is important to understand the risks involved. Along with liability for back taxes, individual and corporate taxpayers can also face liability for interest and penalties. When taxpayers pay less than they owe, interest and penalties begin to accrue immediately. These additional costs can substantially increase the risks of underreporting and underpayment, and they can lead to financial challenges for taxpayers in many cases.
IRS audits can also lead to tax fraud and tax evasion investigations. If an audit uncovers evidence of willful underreporting or underpayment, revenue agents may refer the case to IRS Criminal Investigation (IRS CI). IRS CI has wide-ranging investigative authority and substantial resources at its disposal, and it works with the U.S. Department of Justice (DOJ) to pursue criminal charges when warranted.
Put our highly experienced team on your side
Brian J. Kuester
Former U.S. Attorney
Former DA
Amanda Marshall
Former U.S. Attorney
Local Counsel
Joe Brown
Former U.S. Attorney
& Former District Attorney
Local Counsel
John W. Sellers
Former Senior Trial Attorney
U.S. Department of Justice
Local Counsel
Linda Julin McNamara
Former Chief, DOJ Appeals
Local Counsel
Joanne Fine DeLena
Former Assistant U.S. Attorney
Local Counsel
Aaron L. Wiley
Former Federal Prosecutor
Local Counsel
Roger Bach
Former Special Agent (OIG)
Chris Quick
Former Special Agent (FBI & IRS-CI)
Kevin M. Sheridan
Former Special Agent (FBI)
Ray Yuen
Former Supervisory Special Agent (FBI)
Dennis A. Wichern
Former Special Agent-in-Charge (DEA)
What You Need to Know When Facing an IRS Audit
If the IRS is auditing you or your company, there is a lot you need to know. Executing a sound defense strategy is crucial, and this requires in-depth knowledge of both the relevant facts and the relevant provisions of the Internal Revenue Code (IRC).
When we represent clients during IRS audits, one of our first priorities is always to gain an accurate understanding of our client’s tax liability. Did our client underpay or not? This is a fundamental question that necessarily guides our next steps. The IRS initiates audits for a variety of reasons, and facing an audit does not necessarily mean that the IRS has already uncovered evidence of a mistake.
To assess our clients’ tax liability, we work with our client to gather all necessary records, and then we rely on our experience handling tax audits to determine if our client is at risk. Once we have a clear understanding of the circumstances at hand, we then work quickly to formulate and execute a targeted defense strategy. In many cases, this will involve working to help our client avoid liability entirely. But, if mistakes have been made, we may need to focus on working with the IRS to achieve a favorable resolution that minimizes our client’s liability and protects our client against the risk of future prosecution.
We take this same approach for all types of IRS audits. The IRS conducts three main types of audits—correspondence, office, and field. Correspondence audits involve dealing with the IRS remotely, while office and field audits involve direct in-person communication with the IRS. Regardless of the type of audit you or your company is facing, we can use our experience as former DOJ prosecutors and IRS CI Special Agents to protect you.
Common Issues in IRS Audits Targeting Individuals and Businesses
A variety of issues can arise during an IRS audit. When facing an audit, the key is to be prepared, and to have a strategy in place for dealing with the IRS as necessary. With that said, in many cases a proactive approach will be best, and our lawyers can help you decide how to approach any issues that are likely to arise during the audit process with a focus on minimizing your (or your company’s) overall risk and liability. Some examples of common issues in IRS audits include:
Failure to File All Necessary Returns, Schedules, and Other Forms
While some taxpayers can get away with simply filing IRS Form 1040 once a year, many taxpayers have numerous additional filing obligations. From quarterly estimated payments to schedules and other tax forms, individual and corporate taxpayers must ensure that they timely make all requisite filings.
Miscalculation of Federal Tax Liability
Math errors are among the most common reasons for tax mistakes. They are also among the most common issues in IRS audits. Even when a failure to accurately report a taxpayer’s tax liability is unintentional, it can still lead to liability for back taxes, interest, and penalties.
Improperly Claiming Credits, Deductions, and Exemptions
Along with math errors, mistakes related to credits, deductions, and exemptions are also common. If an individual or corporate taxpayer improperly claims a credit, deduction, or exemption, this can result in underpayment and raise red flags during the audit process.
Improperly Using Conservation Easements, Corporate Structuring, and Other Tax Planning Tools
While tax planning is 100% legal and an effective way to increase individuals’ disposable income and companies’ profitability, the line between tax planning and tax avoidance can be razor thin. Improper use of conservation easements, corporate structuring, and other tax planning tools are all red flags for the IRS as well.
Employment Tax Violations
Many IRS audits targeting companies focus on employment tax. Companies must ensure that they appropriately calculate and remit their employees’ share of FICA taxes, and they must timely pay their share as well. Failure to collect, failure to remit, and failure to pay are all issues that can lead to interest and penalties flowing from IRS audits.
Foreign Financial Asset and Income Reporting Violations
Individual and corporate taxpayers that own (or have a controlling interest in) offshore accounts and other foreign financial assets must report these assets to the IRS in many cases. All taxpayers must also report their worldwide income from all sources. Failure to report foreign financial assets and income are tax law violations that can be exposed during IRS audits and potentially lead to IRS CI investigations.
Cryptocurrency-Related Tax Law Violations
The IRS has prioritized cryptocurrency-related tax law compliance in recent years. Taxpayers must accurately report all gain and loss, and they must have the documentation on hand to substantiate their returns in the event that they face scrutiny from the IRS.
Potential Outcomes of IRS Audits
IRS audits can have a variety of potential outcomes. At The Criminal Defense Firm, we focus on helping our clients achieve favorable outcomes in light of the facts and circumstances at hand. In many cases, this will involve working to avoid liability entirely. But, sometimes the circumstances call for an alternate approach. Generally speaking, the potential outcomes of an IRS audit include:
- No Liability for Back Taxes, Interest, or Penalties – Whenever possible, we work to resolve our clients’ IRS audits without any liability for back taxes, interest, or penalties.
- A Negotiated Settlement – If it is not possible to avoid liability entirely, then the most advantageous approach may be to focus on negotiating a settlement with the IRS.
- Acceptance of an Offer in Compromise – An offer in compromise is a specific type of IRS settlement that involves demonstrating the taxpayer’s inability to pay.
- Imposition of Back Tax Liability, Interest, and Civil Penalties – For taxpayers that choose not to engage defense counsel, the imposition of back tax liability, interest, and civil liability is a very real possibility.
- Referral for Investigation By IRS CI – If revenue agents uncover evidence of willful tax fraud (or what they believe to be evidence of willful tax fraud), they can refer the case for criminal investigation by IRS CI.
FAQs: What To Do When Facing an IRS Audit
Do I Need a Lawyer for an IRS Audit?
If you are facing an IRS audit as an individual, it is strongly in your best interests to engage experienced defense counsel. Companies that are facing IRS audits need to rely on experienced defense counsel as well.
Can an IRS Audit Lead to Criminal Prosecution?
While an IRS audit cannot lead directly to criminal prosecution, revenue agents can refer cases to IRS CI if they uncover what they believe to be evidence of willful violations. If IRS CI uncovers additional evidence of tax evasion or tax fraud, this can result in criminal prosecution by the U.S. Department of Justice (DOJ).
How Can I (or My Company) Avoid Penalties During an IRS Audit?
To avoid penalties during an IRS audit, both individual and corporate taxpayers must rely on the advice and representation of experienced defense counsel. At The Criminal Defense Firm, our lawyers regularly represent clients in high-stakes IRS matters, and we have a proven record of success protecting our clients.
What Should I Do if I Know I (or My Company) Underpaid the IRS?
If you know that you or your company has underpaid the IRS, this is a matter that you will need to discuss with your defense counsel. While taxpayers have options for correcting mistakes and making voluntary disclosures before the IRS initiates an audit, once the IRS initiates an audit these options go away.
What Are My Options if I Can't Afford to Pay What I Owe (or What My Company Owes) the IRS?
If you cannot afford to pay what you or your company owes (or may owe) as the result of an IRS audit, your options may include negotiating a settlement or seeking an offer in compromise—among others. Our lawyers can help you evaluate your options and choose the most cost-effective path forward.
Schedule a Confidential Consultation at The Criminal Defense Firm
Are you (or is your company) facing an IRS audit? If so, we encourage you to contact us promptly for more information. Call 866-603-4540 or contact us online now to speak with a senior lawyer at The Criminal Defense Firm in confidence as soon as possible.