Learning that you have been selected by the IRS or by a state taxing authority for a tax investigation or a tax audit can be understandably stressful. During a tax audit, a well-trained government employee will probe your financial affairs by examining your income tax returns, any corporate, partnership, sales, employment and payroll tax returns and other financial documents for any evidence of tax evasion. Small businesses and self-employed individuals are targeted for tax audits and investigations more frequently than other taxpayers. Once selected for an audit, the likelihood that you will be found to owe taxes at the end of the audit process is very high. Such a finding of delinquent tax obligations can also subject you to income tax underpayment penalty in addition to interest. Having investigated your financial records, an auditor may also find that you were guilty of tax fraud, which in addition to civil fines may subject you to criminal tax investigation and criminal penalties. Therefore, it is critical that you be well-prepared to handle the examination process.
In order to conduct a tax audit, a government agent may visit you at home (at-home audit) or at your business for a field audit. You may also be asked to appear at a local IRS or state government office for an office audit. In a correspondence audit, you will be contacted through the mail and will be asked to send supporting information or documents to the IRS or to the state taxing agency.
Section 7605 of the Internal Revenue Code (Tax Code) regulates the IRS conduct during an audit. For example, under Section 7605(b) “no taxpayer shall be subjected to unnecessary examination or investigations”. The taxpayer has also the right to appear with a representative to assist him or her during the IRS audit. The IRS regulations further elaborate on taxpayer rights during an audit.
An audit may uncover issues such as: unfiled tax returns (delinquent returns), unreported or under-reported income, back taxes or tax liabilities for tax years other than the ones under audit, unreported transactions (for example real estate transactions) that generated taxable income and other tax violations. Any of these findings may subject you to additional tax, penalty and interest for failure to file or accurately report income.
Skillful representation is crucial in an IRS audit defense and in achieving favorable results after the process of tax investigation has been completed. If you have been selected for a state tax audit or IRS tax audit, contact Kamyar Mehdiyoun, IRS audit attorney in Rockville, Maryland. We are a taxation law firm specializing in tax controversy and tax audits with experience in helping our clients during the examination process and beyond.