Few things are more alarming for the average taxpayer than receiving notice of a tax audit. The Internal Revenue Service is the world’s largest tax collection agency, collecting more than $2.4 trillion each tax year. The Virginia Department of Taxation also audits state taxpayers to ensure compliance with tax laws.
Even if you feel confident that no mistakes were made on the return being audited, you’re still worried. What if you or your tax preparer committed an error and you’re left with a huge tax liability you can’t afford to pay and possibly even criminal penalties?
When you’re facing an IRS audit or state tax audit, you want a tax attorney with extensive accounting and tax law knowledge to guide you through the complicated legal process. At Poole Brooke Plumlee PC, we can protect your rights during the auditing process and work to protect your financial resources, so that you can enjoy better peace of mind.
IRS Tax Audits Explained
When the IRS audits you, it examines your financial accounts and income in order to determine whether you paid enough taxes. This process may apply to both personal income taxes and business taxes. In general, it will open one tax year for audit. However, if there are a lot of adjustments, it may decide to investigate other years, so it’s critical to be well prepared. This means having supporting accounting records and tax documents like receipts, canceled checks, and paid invoices.
There are two main categories of IRS tax audit:
Generally, correspondence audits are simpler and less involved. In an audit by correspondence, the IRS sends a written request for additional support for claimed deductions or expenses, or additional documentation related to a specific item of income. If you believe that there may be bigger issues with the return or your accounting records, you should hire a tax audit lawyer for assistance.
A field audit involves a tax auditor interviewing you and inspecting your tax records in person, either at your place of business or at an IRS office. The purpose of this in-person interview is to ensure that the correct taxes are being paid and that income and deductions are being accurately recorded. It may be necessary for you to produce financial records and work papers related to specific aspects of your tax return.
Even if you have accurate and ample records, hiring representation may be a good idea. To be on the safe side (and possibly avoid additional taxes), get legal advice.
Depending on your situation, the IRS may review your entire tax return or only part of it. The IRS often requires extensive documentation of your income and deductions, but an experienced tax audit attorney at our firm can help you with these more challenging parts of the audit.
Reasons for IRS Tax Audits
Anyone can face an IRS tax audit, even if you aren’t a high income earner, wealthy, or a business owner. However, certain factors can increase your chances of being audited by revenue agents. They include:
- You have reported a significant decrease in your earnings from a prior tax year
- You omitted a key form on the tax return in question
- Payroll tax issues
- You appear to have unreported income, such as 1099 or K-1 income
- You neglected to file an important tax form such as a W-2 or Form 1099
- You are self-employed
- You report a significant loss for your business, or you have high itemized deductions relative to your income
- You have foreign accounts (overseas/offshore bank accounts)
- Your return contains mathematical errors
- You claimed the Earned Income Tax Credit (EITC)
- You claimed a dependent who has also been claimed by someone else
The audit notice you receive from the IRS will explain the audit’s primary focus and what documentation you need to provide to resolve it.
Virginia State Tax Audits Explained
Virginia individual and business taxpayers can face audits on their state taxes. If it happens to you, you are guaranteed certain rights, which include:
- The right to be informed of the audit process, audit procedure, and administrative appeal rights
- The right to have the audit conducted at a reasonable time and place
- The right to an explanation of any resulting changes in tax liability
- The right to be represented by a professional of your choosing
A Virginia state tax audit is similar to a federal tax audit in a lot of ways. You receive an audit notification letter from the Virginia Department of Taxation. The notice will indicate whether it is an income tax audit or business tax audit and identify any discrepancies in the taxpayer’s tax return, as well as potential changes in the tax amount due. Moreover, the letter will specify a deadline for taxpayers to respond with additional information or explanation if they disagree with the findings.
What Records Will the IRS Request?
IRS audit processes differ by individual, so the IRS may ask for some or all of the following documents, depending on the scope of the audit.
- Pay stubs or proof of business income
- Receipts for business expenses
- Receipts for claimed deductions, both business and personal
- Bills and proof of payment, such as online statements or canceled checks
- Bank statements for foreign accounts
- Child support and/or spousal support orders that confirm what you pay each month for either obligation
- Support for ability to claim dependents such as school or medical records, and child custody orders
Your tax lawyer can help you assemble and organize your records and make sure they are submitted to the IRS on time. If the audit is being done in person, your attorney can represent you at the office where it will be held and handle all communications with the IRS tax auditor on your behalf.
What if I Disagree With the IRS Audit Results?
No matter what type of audit you’ve experienced, if you disagree with the audit decision made by the IRS agent in the examination report, you can file an administrative appeal with the IRS Appeals Office. You may need to provide additional evidence or request a hearing; in either case, a Virginia tax lawyer can help you move forward with an appeal strategy.
If the IRS Appeals Office affirms the original findings and you still have an audit dispute, you may appeal to the federal Tax Court. If you haven’t already, you should retain an attorney at this stage since this is a court proceeding with specific rules and requirements. An experienced tax audit lawyer at Poole Brooke Plumlee PC can help you prepare the required appeal documents and evidence as well as present your case throughout the appeals process.
Why Hire Poole Brooke Plumlee PC?
We know how the IRS and state tax agencies work and will use that knowledge to get you the best possible result. Poole Brooke Plumlee PC offers strategic planning and effective advocacy to help individuals and businesses reduce their tax liabilities and resolve conflicts with the IRS and Virginia Department of Taxation.
We assist clients with the following types of taxes:
- Personal income taxes
- Business taxes
- Sales taxes
- Payroll taxes
When appropriate, we can help you apply for collection alternatives such as an installment agreement, an Offer in Compromise, Innocent Spouse Relief, or even bankruptcy relief. We are a debt relief agency, we help people file for bankruptcy protection.
Besides providing effective tax audit representation, we also design proactive tax strategies for compliance and mitigation. Researching tax laws can be complex because of the tax code, regulations, case law, and administrative guidance, which is why a tax attorney can be your best ally in an audit situation.
Our clients often ask us if their accountant can support them with these tax issues. While your accountant can be a key ally in your audit defense, an experienced tax lawyer has an important advantage over them- attorney/client privilege for your tax matters. Your accountant could be ordered to testify against you in court, but information shared with your audit defense attorney is protected.
Talk to a Virginia Tax Audit Lawyer Today
State and federal audits can be complicated and time-consuming. We have over 20 years of legal and business experience, so we can guide you through the audit process, negotiate on your behalf, and ensure the IRS and Virginia Department of Taxation revenue agents follow appropriate laws and regulations when dealing with your case. Moving forward, we can also provide assistance with tax compliance.
To schedule a confidential consultation and case review with an experienced attorney, please contact Poole Brooke Plumlee PC today, either via phone or our contact form. Whether you need help with a basic tax audit or an explanation of your appeal options, we can help.