Tax Audit Defense
We have a great deal of experience in successfully defending taxpayers at the audit level and on appeal. Attorney Morris N. Robinson, CPA, LLM published an article entitled "Defending Federal and State Tax Audits for High Income Taxpayers," available on our Publications page. In larger audits, we are part of the tax defense team and we work cooperatively with other members of the tax defense team, who typically include a representative of the taxpayer, the taxpayer’s CPA, and the taxpayer’s attorney. The issues covered in an audit differ greatly by the classification of the taxpayer, so we divide audit defense into the following topics:
- Tax Audits for Businesses and Business Entities
- Tax Audits for Individuals
- Tax Audits for Estates and Trusts
Tax Audits for Businesses and Business Entities
Typical audits of businesses and business entities involve more than one of the issues listed immediately below. These issues are separately listed for purposes of clarity.
- Business Bad Debts Audits
- Business Deduction Audits
- Employment Audits
- Employee versus Independent Contractor Audits
- Form 1099 Audits
- Foreign Tax Credits
- Gross Receipts Audits
- Meals Tax Audits
- Real Estate: Passive Loss Limitation Audits
- Sales Tax Audits
- Use Tax Audits
Businesses entities we have represented include:
- Individuals (Schedule C Audits)
- Limited Liability Companies
- Disregarded Entities
- C Corporations
- S Corporations and their Owners
- Partnerships and Their Partners
Tax Audits for Individuals
Typical audits of individuals involve more than one of the issues listed immediately below. These issues are separately listed for purposes of clarity.
- Business Bad Debt
- Charitable Deduction
- Charitable Valuation
- Foreign Tax Credit
- Gross Receipts
- Real Estate: Passive Loss Limitation
Tax Audits for Estates and Trusts
- Estate Tax/Valuation Audits
- Income Tax Audits
- Foreign Tax Credit Audits
We are almost always successful in handling tax audits. The reason is that the rules are typically unambiguous and the practical issue is twofold:
(1) Does the taxpayer’s position have merit?
(2) If so, does the evidence exist to prove the taxpayer’s position?
Often, the facts change as the case unfolds. Our answers to the above questions also change. We continually reevaluate the taxpayer’s case. Once we believe that an investment of a dollar in fees will result in the abatement (or refund) of three dollars in tax, we seek settlement. Typically, the taxing authority will estimate the amount of our fees to try a case in court. They will usually offer to settle for our anticipated fee. Thus, most cases settle advantageously.
It is not unusual for the taxing authorities to begin the settlement negotiations by offering to reduce the proposed tax assessment by 20 cents on the dollar. By the end of the negotiations, they will accept a reduction in the tax assessment of between 50 and 80 percent. In some cases, they give the taxpayer a “no change” agreeing that the taxpayer did not owe the government anything.