Do I need an audit defense attorney?

April 19, 2021 by Glynis Miller, CPA, MST
attorney helping client

Many taxpayers are audited every year, but the stories that make headlines are usually the ones where someone owes a crazy amount of money or is maybe looking at jail time for tax fraud or tax evasion. The details relating to these horror stories include taxpayers having their homes, cars, savings, and other property seized by the IRS. Hearing these types of details can be terrifying to the average taxpayer. So it is no wonder many taxpayers will ask the question, “Do I need an audit defense attorney?” Well, the truth of the matter is that an attorney is not always needed, but in some cases, one is absolutely required. So, how do you know when that might be?

Before we go on, it is important to understand that tax returns are filed under a system of voluntary compliance. Note that tax returns are often self-prepared or prepared by someone other than the taxpayer, and mistakes can occur. The IRS and state agencies use the audit process as a tool to confirm the assertions made on a tax return. The audit process can be long and tedious, thus causing much confusion and anxiety. When we understand that mistakes can be made on tax returns that result in severe consequences, there is no doubt some professional help may be warranted. However, just because someone is audited, absolute panic should not set in with the belief that only an audit defense attorney can offer the assistance needed. However, if your case is related to tax fraud or tax evasion, you will need an attorney at law to represent you. Why? Because these cases deal not only with tax codes, but they also address potential criminal charges. If criminal charges are filed, or a tax matter requires going to trial, those cases can only be addressed in the court system, for which an attorney is required to assist with the taxpayer’s adjudication.

That being said, most audits do not concern these issues and do not require a tax attorney to receive quality representation. What is needed is an authorized representative who understands the tax code. Yes, that is correct; an authorized tax professional is generally all that is required when obtaining assistance in defense of a tax return during an audit. But who is considered qualified? An authorized tax professional is someone who has been granted certain rights to practice before the IRS on others’ behalf and must be eligible to sign the required Form 2848 Power of Attorney and Declaration of Representative. If an individual does not have the necessary qualifications to sign the power of attorney form, they may not be able to do more than send your documentation to the IRS.

Now, let us look at the tax professionals who can sign Form 2848 and may be able to represent you in the case of an audit:

 

  1. Attorneys – Those in good standing with the bar of a state’s highest court can practice before the IRS. They should not be under any suspension or disbarment from the Bar Association.
  2. Certified Public Accountants (CPA) – Those duly qualified in any state can practice before the IRS. They should not be under any suspension or disbarment from the Board of Accountancy.
  3. Enrolled Agents (EA) - Currently, active EAs may practice before the IRS if they are not under suspension or disbarment by the Office of Professional Responsibility (OPR).


Some things to note: An Enrolled Agent is an individual who has received authority to represent taxpayers before the IRS after successfully passing a three-part test on individual and business taxes or based on former experience as an IRS employee. If you seek a CPA or attorney instead, you should make sure they specialize in tax matters.

Now please understand the IRS sends out hundreds of thousands of letters to taxpayers every year. Some of the letters are very simple, while other letters can confuse an individual about what the IRS wants from a taxpayer. The form letters used by the IRS are not always clear in exactly what the issue is related to, what they need, or even why. It is beneficial to know what type of audit you have received, but it is not the only information necessary to defend it. Here are the types of audits the IRS conducts:

 

  • Correspondence Exam – Communication with the IRS for this type of audit is handled primarily by correspondence (mail, fax, or possibly email). Copies of support documents are submitted to the IRS for a very limited scope of items from the tax return, and the case is assigned to an IRS examiner once received. There may never be any direct contact with the IRS examiner during the audit.
  • Office Exam – Communication with the IRS for this type of audit is handled with a face-to-face appointment at an IRS office. Support documents are taken to the appointment for the IRS to examine. The IRS attempts to resolve these cases in one meeting. Still, they can take longer with subsequent copies of support documents being sent to the examiner or provided at additional appointments. These examinations generally have more complex audit issues than correspondence exams and can involve multiple tax years.
  • Field Exam – Communication with the IRS for this type of audit is handled with a face-to-face appointment either at the taxpayer’s home, place of business, or possibly the taxpayer representative’s office. Support documents are made available for the examiner to review. If the appointment is held away from the taxpayer’s home or business, the examiner can still request to tour the taxpayer’s home or business. The tour is generally done in an effort to confirm home offices or legitimate business establishments. For the field exam, the examiners can easily broaden the audit scope and review multiple years.

CPAs, EAs, and attorneys can all represent you in each of the audit types noted. Representation requires the tax professional to understand the audit issues related to the tax code, review your documentation, and determine the correct response to be submitted according to all the facts and circumstances presented to resolve the issues.

Now, just because an attorney, CPA, or EA can represent you, how do you know which one is right for your specific situation? Well, the good news is, here at TaxAudit, we have all three here ready to assist with your audit! If you would like more information on how to get assistance, click here to review our evaluation services.

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Glynis Miller, CPA, MST
Tax Content Developer

 

Glynis began her career with TaxAudit in February 2006 as a Seasonal Tax Return Reviewer. In December of 2008, she joined the permanent staff as an Audit Representative. Glynis has been an instructor for both continuing education tax classes and various staff training classes since 2009. Glynis holds a Bachelor of Science Degree in Accounting and a Master’s Degree in Taxation. Prior to joining TaxAudit, Glynis worked in private and public sectors of accounting. She has worked at regional accounting firms preparing tax returns, financial statements, and audit services. Her professional career has spanned over a wide variety of industries from advertising, construction, commercial real estate, farming, manufacturing and more. In 2017, Glynis joined the Learning and Development Department as a Tax Content Developer. She is providing a wealth of accounting and tax knowledge, writing skills, current job awareness, and a very cross-functional skillset to the team. 


 

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