Did You Get an Audit Notice from the IRS?

Did You Receive an Audit Notice?

Taxpayers may receive an IRS audit notice for many different types of reasons. While many tax attorneys try to scare taxpayers into believing that receiving an audit notice is the worst thing that will ever happen in their life — you should take heed of the fact that this is just a form of fear-mongering and oftentimes Internal Revenue Service tax audits are not that bad at all. The main issue with the tax audit is simply that it takes time and effort for the taxpayer to respond and participate in the audit when the taxpayer could be doing something else. Taxpayers should also keep in mind that just because the taxpayer is under audit does not mean that they will owe any tax or be subject to any penalties. Many times, the outcome of an IRS audit is an NC letter or ‘No Change’ letter — which means the outcome of the audit did not result in the taxpayer owing any money. Sometimes the taxpayers will come out ahead in an audit where the agent realizes that the IRS charged the taxpayer too much money and therefore the taxpayer may receive a refund at the completion of the audit. Likewise, even if the audit does not work out and the taxpayers favor there are typically other actions they can take after the audit such as an audit reconsideration or Collection Due Process Hearing. Let’s take a brief look at:

• • • a few preliminary steps taxpayers should take when they receive an IRS audit notice,

    • whether they need to hire a tax audit attorney to assist them with the matter, and

    • how to find an attorney to represent them in the audit or examination

Before Responding to the IRS Letter…

When the taxpayer receives an audit notice or notice of examination, the knee-jerk reaction is to immediately reach out to the IRS, but typically that is not the best way to go. Usually, it helps the taxpayer to get their ducks in a row first before making any proactive representation to the IRS. If the taxpayer receives a notice that is almost (or already) past due then they may want to reach out to tax lawyers and other tax professionals immediately to get a lay of the land before responding.

What is the IRS Auditing you for?

Once a person receives an audit notice, the first thing they should do is read through the notice to determine why they are being audited. Common issues include:

• • • failing to file a tax return,

    • filing an an inaccurate tax return,

    • failing to to file information returns such as the FBAR, Form 8938 or For 3520, or

    • does the IRS want to audit other aspects of their filings ancillary to the tax filings

Check The Response Date of the Audit Notice

Next, the taxpayer should check to see what the response date is of the audit notice and be sure that a response is submitted before that time. If the taxpayer believes they may require more time, they can typically request that from the agent but they may want to go through their representative instead of contacting the IRS themselves.

Is there an IDR (Information Document Request)

Oftentimes, the IRS will require certain documentation from the taxpayer, the audit notice may also include an IDR or ‘Information Document Request.’ The taxpayer should look through that request to determine whether they have the documents necessary to respond or whether they can access that documentation.

Consider Representation (Attorney, EA, or CPA)

In general, it helps the taxpayer to have representation before the IRS, but there is a cost-benefit analysis to consider as well. While having an attorney is usually preferred, it may not be cost-effective for the taxpayer and so if not they may want to consider other representations such as an Enrolled Agent or CPA if the CPA handles tax matters.

Not all CPAs handle tax matters.

While there is no attorney-client privilege with a non-attorney, there is a limited privilege with a tax accountant so the taxpayer should assess all the facts and circumstances along with their budget to determine how to proceed.

How to Hire a Tax Audit Attorney

Once the taxpayer is under audit and begins researching attorneys, they will find many unnecessarily aggressive and fear-mongering type of attorneys online trying to price gouge them and get them to sign with their firm as quickly as possible. Here are a few things to consider first:

Do They Specialize in the Type of Audit (International, Employment, Etc.)

Make sure that the attorney specializes specifically in the area of tax that you are seeking representation. For example, if you are seeking representation in an international tax matter then you want to be sure that the law firm specializes exclusively in offshore tax.

If the law firm claims to be a specialist but then has 10 different areas of practice on its website, then chances are they are not a specialist in that area of tax and it is just a marketing gimmick.

Years in Practice vs. Marketing Nonsense

You should find out which specific attorney is handling your case, which attorney you will be in contact with, and how much experience they specifically have in these types of matters.

Some firms like to make bold statements about how their firm has ’50 years of combined experience,’only to learn that the firm employs 12 new attorneys each with l5 years or less of experience.

If the Attorney Claims to be a Board-Certified Tax Lawyer Specialist

Lately, there have been firms that claim to be board-certified tax law specialists, even though there is not a single attorney at their firm who has earned the board-certified tax law attorney designation. For any firm to claim they are board-certified tax attorneys, the attorney must have met the rigorous requirements of earning the specialization and they must be licensed by at least one state Bar Association as a board-certified tax law specialist. We have resources to assist you with hiring an offshore tax attorney if your matter includes offshore tax matters and how to protect yourself against attorney misrepresentation.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: International Tax Law Specialists

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.