IRS Audit Defense Strategies: A Lawyer’s Guide

Getting audited by the IRS is scary-I get it. I want to help you feel prepared and less stressed about it. Let me walk you through what happens in an income tax audit, what can trigger one, and what strategies will help you prepare the best defense. I’ll also explain what might happen at the end, including ways to settle with the IRS if you need to. Once you know what to expect, you’ll feel much more confident handling the whole thing.

Let me explain how IRS audits work, so you know what to expect. I’ll walk you through the different kinds of audits, what happens during each step, and how long everything takes. You’ll learn how the IRS picks who to audit, what might happen at the end, and yes – even how tips from other people can trigger an audit.

The IRS performs three main types of audits, and each one works differently. The simplest is when they send you a letter in the mail asking about specific things on your tax return. Then there’s the kind where you go to their office to meet with someone and explain your taxes. The most detailed type is when they come to your home or business to look through everything in person.

The IRS has two separate divisions that examine tax returns: Examination (Exam) and Criminal Investigation (CI). While they serve different purposes, understanding how they interact is crucial.

Exam handles routine audits, reviewing returns for accuracy and proper documentation. CI investigates potential tax crimes like fraud and evasion. Most audits stay within Exam, but certain red flags can trigger CI involvement.

Warning signs that an audit may be escalating:

If you notice these signs, the audit may be moving beyond a routine examination and you should contact a tax lawyer immediately.

Here’s what happens when you get audited. First, you’ll get a letter from the IRS telling you what they want to look at – maybe it’s your income, your deductions, or tax credits you claimed. Then it’s time to pull together your paperwork and send back what they asked for by their deadline. Being polite and professional in all your back-and-forth with them helps things go smoother.

Most audits stretch out over several months, from the time you get that first letter until everything’s wrapped up. I know waiting that long can be stressful. That’s why many people work with an tax attorney to manage communications with the IRS – they’ll help you stay on track with deadlines and make sure you’ve got all your records ready, like your bank statements and receipts. This way, you won’t get caught off guard by anything the IRS asks for.

How does the IRS pick who to audit? They look for several things that might raise red flags – like if your income doesn’t match your tax forms, if you’re claiming unusually large refunds, or if your business expenses seem out of the ordinary. They use smart computer programs to spot tax returns that look different from what’s typical. To stay off their radar, keep detailed records and make sure you’re following IRS rules for tracking your income and expenses.

Let’s talk about what might trigger an audit and how you can avoid catching the IRS’s attention.

The IRS exam function tends to look more closely at tax returns with high income, especially if they spot anything unusual about payroll or if you’re claiming big deductions. Your best protection? Keep good records and double-check that you’re claiming tax credits correctly. This helps you stay within the rules and makes you less likely to get that dreaded audit letter.

The IRS pays close attention when businesses claim unusually large deductions. If your business write-offs seem much bigger than others in your industry – like claiming too many expenses or putting unrealistic values on your assets – it might catch their eye. To stay safe:

If your business shows losses year after year, the IRS might start wondering what’s going on. They might question whether your business is really trying to make money, and they’ll look extra closely at things like tax credits (like the employee retention credit) and deductions. Before you file taxes showing another year of losses, it’s smart to talk with a tax lawyer. They can help make sure you have solid proof to back up your losses and help keep the IRS from knocking on your door.

One thing that really gets the IRS’s attention? When your tax return doesn’t match your W-2s or 1099s. Think of these forms like puzzle pieces-if they don’t fit together perfectly, the IRS will want to know why. Before you file, double-check that all your income numbers match up with what your employer or clients reported. This is especially important when you’re dealing with property or special tax breaks. It is advisable to consult a certified public accountant for professional insight.

Here’s what to watch out for:

Here’s what smart taxpayers do to stay off the IRS’s radar: Keep detailed records of everything coming in and going out. This is super important if you have foreign assets-those get extra attention from the IRS. It’s worth checking in with a tax pro regularly to make sure you’re following the guidelines set forth in the Internal Revenue Code.

When the IRS audits you, being organized is your best defense. Think of it like getting ready for a big presentation – you want all your paperwork lined up and ready to go. Let’s break down what you need:

Save everything that shows what money came in and went out. Keep all your receipts, bank statements, and proof of any tax deductions you claimed. If you run a business, this is even more important – you need records of every transaction.

Put together a file with all your tax forms, pay stubs, and any other papers that back up what’s on your tax return. Keep them organized by year and type. This makes it much easier when you need to find something quickly.

When you explain things to the IRS, be thorough but straightforward. Show them how you calculated everything on your return and have the papers to back it up. This helps prove you did everything correctly. A tax attorney can help you present the information in the best light possible to position you for a better audit result.

The best way to handle an audit is to be ready before it happens. Keep your records organized throughout the year – not just at tax time. Many people find these tools helpful:

Thorough documentation can mean the difference between a favorable outcome and significant penalties.

Stay organized and your audit will go much smoother. Save your tax documents in cloud storage like Google Drive – that way you can get to them anytime you need them. Request your Wage & Income transcripts to see what W-2’s and 1099’s the IRS has on file for you so you can compare against your tax filings. And grab a receipt scanning app like Quickbooks Online or Adobe Scan to save all your paper receipts before you have a chance to lose them.

Now let’s talk about your rights during an audit so you feel more confident when dealing with the IRS.

Having a tax lawyer by your side makes a huge difference – they’ll help protect these rights and handle the IRS for you.

Your Basic Rights The IRS has to tell you exactly what they’re looking at and why. You get to explain your side of things and show them proof to back up what’s on your tax return. If you don’t agree with what they decide, you can appeal it. Most importantly, you have the right to have a lawyer speak for you – and you should use this right!

The IRS can ask for things like bank statements and receipts, but only for the tax year they’re checking. They can’t go fishing through unrelated personal information. Your lawyer will make sure they stay in their lane and only get what they’re legally allowed to see.

A tax lawyer does three big things for you:

Some IRS agents are overly aggressive and will push hard for information you don’t have to provide. Your lawyer knows how to push back and protect your rights when this happens.

Here’s something really important: What you tell your tax lawyer is protected by client confidentiality and stays completely private – the IRS can’t make them share your conversations. But that’s not true with your CPA or tax preparer. The IRS can force them to testify about what you’ve told them. That’s why it’s smart to have a tax lawyer leading your audit defense, even if your CPA helps with the numbers.

While you’re going through an audit, you need to stay in compliance with your ongoing tax obligations – report all your income, keep your receipts, and file your taxes on time. Your tax attorney and CPA can help make sure you’re following all the rules.

Now let’s talk about how to handle those conversations with IRS agents.

Let me help you handle those conversations with IRS agents. They can be tense, but I’ll show you how to make them go smoothly.

Let me share something crucial I learned when I trained IRS agents: they’re specifically taught how to get taxpayers to say things that hurt their case. That’s why my biggest piece of advice is this – don’t talk to the IRS without a tax lawyer. I’ve seen too many people damage their cases by trying to handle it themselves.

Even simple questions are often traps – I know because I used to teach agents how to ask them. What seems like friendly small talk can turn into evidence against you. Your lawyer knows how to protect you from these tactics.

Never answer IRS questions directly – even if you think you know the right answer. Let your tax lawyer review everything first. Your lawyer will know how to answer the questions and provide supporting documentation in a way that doesn’t create new problems.

Audits make everyone nervous, and IRS agents are trained to use that stress against you. Your best move? Let your lawyer deal with them while you focus on gathering your records and staying organized.

I’ve been on both sides of audits, and I can’t stress this enough – contact an IRS audit lawyer immediately if the IRS reaches out to you. Don’t try to handle it yourself, especially since agents are trained in techniques to get unfavorable responses from taxpayers. Contact our office to request a confidential consultation. The sooner you get help, the better we can protect your rights.

At the end of your audit, the IRS will send you either Letter 525 or Letter 915. Both give you 30 days to either agree to what they found or fight back – and this is where many taxpayers make costly mistakes. These letters come with reports showing how much extra tax they think you owe. What you do next can mean the difference between owing thousands of dollars or successfully challenging the IRS’s findings. Let me walk you through your options and show you how to protect yourself.

When you get Letter 525 or 915, don’t sign anything yet. Your tax lawyer needs to carefully review the report that comes with it. They’ll check for mistakes and see how these changes affect your taxes. Remember – you only have 30 days from the date on that letter to challenge their findings.

Don’t worry if the IRS says you owe more than you think you should. You have options:

Think of an appeal like getting a second opinion – but with someone who has more power to help you. Appeals Officers are usually more experienced and better educated than regular IRS agents, and here’s the important part: they have much more flexibility to settle your case. While IRS Revenue agents have to follow strict rules, Appeals Officers can consider the “hazards of litigation” – meaning they can settle for less if they think the IRS might lose in court. They’re also completely separate from the audit team, so they’re looking at your case with fresh eyes. Your lawyer will know how to present your case in a way that takes advantage of this flexibility.

If the IRS says you owe money after your audit, don’t panic. You have several ways to handle it, and some might surprise you.

Look, dealing with the IRS isn’t fun – I know because I’ve been on both sides of the desk. I spent years as an IRS agent before becoming a tax attorney and CPA, so I understand exactly what you’re going through and how stressful this feels.

You don’t have to handle this alone. If you’re worried about an audit or have tax issues keeping you up at night, let’s talk. I can help you get organized, deal with the IRS effectively, and protect your rights every step of the way.

Contact my office to request a consultation. Together, we’ll create a plan to resolve your tax concerns and help you sleep better at night.