The 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?
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.
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.
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.