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IRS AND CALIFORNIA TAX AUDITS

Facing an IRS audit can be a daunting experience.  Having a skilled tax attorney who deals and negotiates with IRS agents on a daily basis and who can identify sensitive items and issues on a tax returns is crucial.  Never fight an IRS audit alone.

An IRS audit or examination can be a very daunting experience for a taxpayer.  In an IRS audit, the taxpayer has the burden of substantiating or proving the income, deductions, and credits taken on a tax return.  For this reason, IRS tax audits tend be highly complicated, stressful, and sensitive.  Fortunately, there is no reason for you to handle your IRS audit alone.  At Dallo Law Group, our San Diego tax lawyers are experienced and trained in the IRS audit process and we know how to deal and negotiate with the IRS on your behalf.  Because we are also CPA trained, we know how to navigate through your tax return and know how to substantiate your income, deductions, and credits.

What is an audit?

An IRS audit is a review of a taxpayers financial accounts and information for a given year to determine whether the tax return is reported correctly and accurately. An IRS tax audit may be conducted by mail (correspondence audit), at the office of the taxing agency (desk audit), or at the taxpayer’s home, place of business or office of the accountant or attorney (field audit). While taxpayers would prefer correspondence audits or desk audits, the IRS chooses the type of audit that will take place. However, if a field audit is selected by the IRS, Dallo Law Group will ensure that the IRS audit may only be conducted at our offices to eliminate the interaction between you and the auditor, as well as minimize the stress and burden that naturally comes along with the audit process.

How can I find useful information and help with the audit process online?

Please visit our Tax Blog Page and read our “Tax Audit Survival Guide” for more some tips and assistance with your IRS tax audit.

Why was I selected for an IRS audit?

There are many reasons why the IRS or another taxing agency may decide to select you for audit. The IRS often looks for “red flags” on your tax returns. There are numerous “red flags” that can trigger an IRS audit, such as unusual or high deduction taken on your tax return, a big change in income between tax years, estimated income, and deductions, among others. A tax return (Form 1040) can be selected for audit by “document matching.” IRS computers will match what you report on your tax return against the forms filed by people you interact and do business with (Forms 1099, W-2, 1098, etc.). If the amount reported to the IRS on those forms do not match what is reported on the tax returns, an audit may result.

Tips from informants can also trigger IRS audits. This information can come from individuals or from newspapers or public records. Sometimes, a tax return can be singled out for special attention because the IRS is investigating certain transactions that are problematic for the IRS. Many times, the mere “failure to file” a tax return will trigger the IRS audit. An IRS tax audit triggered by the failure to file a tax return can lead to undesirable results for the taxpayer, as the auditor may simply create a tax return for the taxpayer (known as a substitute for return,) and often times may result in an unwarranted and completely arbitrary tax liability for the taxpayer. If you are delinquent in filing your tax returns, contact Dallo Law Group today for assistance in preparing and filing your tax returns.

What happens if I simply ignore the notice of audit?

A taxpayer should NEVER ignore any notices sent by the IRS or other tax agencies, especially not a notice of IRS audit. Ignoring notices of, often produces disastrous results for the taxpayer. For instance, the IRS or state taxing agency often will issue a notice of proposed assessment with a completely arbitrary proposed increase of tax liability, and ultimately, a notice of deficiency (90-Day Letter). The failure to timely respond to the notice of deficiency will result in an assessment of the arbitrary tax against the taxpayer and soon thereafter the IRS may begin unwanted collection activity. If you have received a notice of audit from the IRS, contact Dallo Law Group or another experienced tax attorney today to represent you in the audit.

What happens during an audit?

During the audit, the IRS will attempt to contact the taxpayer either by telephone or by issuing an IDR (Informational Document Request) by fax or email. Many taxpayers improperly believe that they are required to answer any and all questions and documents requested by the IRS. This is simply false. Many times, the requests of the IRS are vague or overboard, in which case the taxpayer has no obligation to provide answers to the questions presented or documents requested. Furthermore, there are several instances where the production of the documents or answers to the questions are privileged, including but not limited to, testimonial privilege, spousal privilege, confidential marital communications privilege, attorney-client privilege and work-product privilege.

It is important to note that a taxpayer may not simply refuse to respond to the IDR’s of the IRS on the grounds that the taxpayer may not be privileged from producing this information. The failure to respond to an IDR may result in the issuance of a subpoena for records by the court, and if the taxpayer continues to refuse to respond, it can result in civil and criminal penalties. Contact Dallo Law Group today to protect your rights and to obtain qualified and competent legal representation during your audit.

What are the possible results in an audit?

An audit can result in either a “change” or “no change” in the tax liability of the taxpayer for a specific tax year. If the audit results in a “change” to the tax return, the taxpayer has the right to appeal the decision to the administrative appeals division of the IRS. If the taxpayer is unable to resolve the dispute at the audit or appeals level, the IRS will issue a notice of deficiency to the IRS in which case the taxpayer has 90 days to file a petition in the United States Tax Court for re-determination of the tax liability.

What happens after the audit?

After the IRS issues a notice of deficiency, the taxpayer has 90 days to file the petition with the United States Tax Court (unless the notice of deficiency was addressed to a taxpayer outside of the United States, in which case the taxpayer has 150 days to file the petition). It is VERY IMPORTANT that the petition is filed within the 90 day time period if the taxpayer wishes to dispute the tax deficiency. If the deadline is missed, the IRS will automatically access the tax against the taxpayer and the IRS will subsequently issue a lien against the property of the taxpayer and may commence collection activities (levy and garnishments) against the taxpayer. Furthermore, additional “failure to pay” penalties may accrue. Contact Dallo Law Group or another experienced tax attorney today to assist you in the audit process and the post-audit procedures.

Why should I hire Dallo Law Group to represent me in an audit?

In navigating through the audit process, experience and education are crucial. Michael Dallo is skilled in dealing and negotiating with the IRS and other taxing authorities and has achieved superb results for his clients in audit. Contact Dallo Law Group Law Group for a FREE consultation to discuss how we will put our 10 years plus tax experience to work for you!