The Importance of Representation in a Tax Audit

by Steven Klitzner on June 19, 2013

(US tax law and practical information) Tax filing time in early spring seems to be about the point in the year that people are the most cognizant about the risks of a tax filing audit. However, these examinations actually happen a bit later in the summer and fall, as IRS auditors pour over the millions of tax filings submitted annually. That said, anyone submitting a 1040 version, 1065 and an 1120 IRS form are all subject to an audit review if chosen. Fortunately, only 1 percent of the filing population gets picked each year.

For those that are selected, however, it’s important to understand how and audit works and the benefits of audit representation. Anyone who works in accounting knows that an audit is a regular check to make sure data being provided is correct. Tax audits are performed randomly or on tips to make sure filers are following the rules and not claiming more savings than they should. That said, a full-blown tax audit can be a rough experience, especially when a tax filer responds the wrong way.

Notice

An IRS audit doesn’t happen by surprise. The first communication will be in the form of a notice direct from an IRS office detailing the type of review and what to expect. It will notice either a desk review or an actual meeting.

The most common audits are desk reviews or desk audits. These are commonly performed for matters under $2,000. The IRS often finds what it sees as a calculation mistake, arrives at its conclusion what the adjustment should be, and then sends a small bill to the taxpayer. The best way to handle these when the amount is small is to simply pay the amount and close the issue. The case is then closed and the IRS moves to the next person.

The Meeting

A regular audit requires an in-person meeting. The IRS will specify the area to be reviewed, for example Schedule C expenses, and a time and place to appear. This is where representation is critical. A taxpayer has the right to have a representative appear instead. This can be a CPA, a tax preparer, or a tax attorney. You can find more information on choosing someone to represent you on this page. Whichever the case, it’s important to have an experienced representative who understands exactly what the auditor is asking to see, further questions, and the documentation. Most average taxpayers don’t, and they often volunteer more information than necessary. That in turn makes an audit broader and uncovers more problems. Good representation keeps the audit meeting narrow and to the point.

Further, having a representative handle the meeting avoids personal talking. This is important as many taxpayers get in trouble because of what they say when they panic under review. The wrong statement can be seen as a false statement to a tax auditor, which triggers federal criminal penalties. One proven lie can result in up to five years in federal prison for false statement. When put in this perspective, having a representative do the talking involves a far smaller cost to one’s livelihood.

In Summary

An IRS audit meeting shouldn’t be dismissed. A smart taxpayer hires quality representation to handle the meeting and response, avoiding unnecessary headaches.

Steven Klitzner
A leading tax attorney in the North Miami Beach area of Miami, Florida. Works with clients on handling IRS situations such as un-filed taxes, wage garnishments and more.
Steven Klitzner

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  • Earl Jones

    The article briefly summarizes the audit and appeals processes. Tax audits are such a scary thing to think about for most people. That is why a representation is very important to handle the meeting.
    Manhattan-CPA.com

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