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Tax Controversy: What to Do When You Get An Audit Letter

tax controversy | auditThe phrase “tax controversy” is used in the legal profession to define tax disputes that originate between the IRS or a state tax agency and a Taxpayer, usually, but not always, originating from an audit.

Legal services offered as part of a typical tax controversy matter can include assistance with audits, appeals, and Tax Court litigation as well as negotiated settlements.

While the odds of getting audited are lower than 1%, there is still a chance that the IRS will serve you with an audit letter, particularly where tax issues are flagged on the Taxpayer’s return. So what do you do when you receive an audit letter and are facing a tax controversy?

  1. Ask “Why me?”

The IRS may know exactly why you’ve been targeted, but just because you receive a tax audit letter does not automatically mean you are guilty of tax evasion or some other tax related crime.

Many times people are audited because the IRS doesn’t have enough information about them and is merely seeking clarification. In other case, a Taxpayer maybe selected randomly. With most Taxpayers, the IRS has access to all their information, like their total wages and how much mortgage interest they paid. However, returns filed by self-employed people and the wealthy tend to have a lot more self-reported items that the IRS may question.

Review your return to ensure it is accurate and only provide the information the IRS specifically asks for to avoid broadening the scope of the audit to other years.

  1. Get Your Ducks in a Row

Once you have reviewed your return and determined, with the help of a tax controversy specialist, the necessary information the IRS is seeking, begin compiling that information.

The IRS can audit you for taxes up to three years, so it is important to save documentation of your business or personal expenses as they relate to your taxes. For example, if you are being audited because you wrote off 100% of your car usage as a business expense, get your mileage log and other evidence that the car was used only for business purposes all in one place.

  1. Be Efficient in Your Response

The most surefire way to avoid the negative ramifications of a full blow audit is compliance. This doesn’t mean you roll over and give in to the IRS. Instead it means that you seek a qualified tax attorney to assist you in preparing the documents and information the IRS is seeking and conduct due diligence to ensure that you are complying with their requests. Once you have done your due diligence, respond to the IRS promptly and courteously

As the adage goes, ignorance is bliss, but in the case of an IRS audit, ignoring the letter will only make things worse. The IRS will give you a certain deadline to respond, make sure to meet this deadline in order to avoid larger consequences like civil penalties or possibly criminal action.

If you have a tax controversy, either related to your personal or business, please see the help of a qualified tax attorney to guide you through the process of dealing with the IRS.
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FBAR Failure Leads Connecticut Executive to Plead Guilty to $8.4 Million Tax Evasion

Prosecutors announced Jan. 20 that a Connecticut business executive has pleaded guilty to willfully failing to report offshore bank accounts to the IRS.

Tax Evasion, Offshore Account filing taxes with the IRSAs part of his plea, which was entered Jan. 16 2015 before Magistrate Judge Debra Freeman of the U.S. District Court for the Southern District of New York, George Landegger of Ridgefield, Conn., agreed to pay a civil penalty of more than $4.2 million and more than $71,000 in back taxes.

According to the charges in a criminal information, Landegger maintained undeclared accounts at an unidentified Swiss bank based in Zurich from at least the early 2000s until 2010. His undeclared assets reached a high value of over $8.4 million in that period.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

According to prosecutors, a representative of the Swiss bank referred Landegger to a Zurich-based attorney, Edgar Paltzer, to form a sham entity to hold his undeclared accounts. In April 2009, Landegger met with the bank representative and another individual to discuss the future of his undeclared accounts in light of the news about a U.S. investigation into hidden accounts at another Swiss bank, UBS AG, according to the charges.

At the meeting, prosecutors said, Landegger affirmatively rejected the possibility of disclosing his undeclared accounts to the IRS through its Offshore Voluntary Disclosure Program or otherwise. Instead, he shifted the assets out of Switzerland into a new, declared account in Canada and an account kept by another person in Hong Kong.

“The benefits of citizenship or residency in the United States come with certain obligations, including, as George Landegger well knew, the legal requirement to report foreign bank accounts,” U.S. Attorney Preet Bharara said. “He will now pay for his illegal conduct.”

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