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Tax audit representation, also called audit defense, is a service in which a tax or legal professional stands in on behalf of a taxpayer (an individual or legal entity) during an IRS or state income tax audit.
During an income tax audit or examination, the IRS and all states allow a taxpayer to have an authorized representative. The representative must have permission to practice before the IRS or state, and specific credentials are required. The types of representatives who are allowed to represent taxpayers before the IRS in income tax audits include attorneys, CPAs, and enrolled agents.
An audit representative develops the strategy used to defend the taxpayer’s position. He or she assists the taxpayer in preparing all documents requested by the taxing authority and typically attends all meetings and handles correspondence on behalf of the taxpayer.
Unfortunately, some unlucky people wind up getting audited.
Seventy percent of audits are just a letter asking for more information about your tax returns, and you’re asked to mail back forms proving your income or deductions. In other cases you’ll get an invitation to meet with an agent to discuss your tax forms, a scenario that sends many taxpayers into a panic.
Well there’s no need to panic, but there are certain steps you should take.
Ignoring the IRS is the worst possible thing you can do. The situation won’t go away.
While you should write back as soon as possible, you or your audit representative can ask for more time to gather the paperwork and forms. A two week extension is not an unreasonable request of your IRS agent.
Most of the time the letter you get in the mail is just a simple request for information – the IRS just wants you to mail in your 1099 form, for instance, or they want to see receipts for the business meals you deducted. In that case, just sending in the requested paperwork is usually sufficient, and you don’t need to get your lawyer or accountant involved.
If you can’t find the information they’re looking for, you’ll probably want to call a professional to advise you on your next move. And if you’ve been called in to meet with an agent, you should almost certainly bring in outside help from a qualified tax attorney or accountant.
You’ll need to grant power of attorney to your audit representative, to let them handle everything while you stay home.
You might think that bringing in a professional firm that deals with audit representation will annoy the agent or make him or her think you’re guilty – it will do quite the opposite, actually. Your IRS agent will generally prefer to deal with an attorney because they will prepare the requested information in a way that’s easy for the agent to read, and will do so in a dispassionate and professional way.
Only about 2% of audits are random; the rest of the time, the IRS has very specific questions it wants answered, and will request forms and receipts accordingly.
That means two things: Send or bring all the forms you’re asked to bring, and answer all the questions to the best of your ability.
That second point is important. Whereas keeping your mouth shut is usually best when you’re getting interviewed by the police, in an audit you’re usually best served by stating your case and answering all of the agent’s questions. After all, if the IRS is calling you in to talk about how much income you reported, it’s probably because the agency believes you’re underreporting. The audit is your opportunity to convince the IRS otherwise.
With that said, it’s possible to overshare. This is not the opportunity to brag about how much money you made last year.
Once the audit is done, the agent will assess any taxes and penalties you owe. However, the assessment can always be appealed. The IRS may be willing to cut you a deal that will make you happy because they don’t want the case to drag on. This is another time where it pays to have good audit representation form an attorney experienced with tax negotiation. A good tax attorney will be skilled at escalating the case to make a settlement easier.
The IRS’ lawyers are ready to negotiate and will often settle cases before going to court.