FAQs About IRS Audit Disputes in California
The idea of an IRS audit always sparks questions and concerns from business owners and taxpayers. As a tax attorney, I receive so many questions about IRS audits in California — from what triggers an audit to how to appeal and what penalties one may face if the audit does not go in their favor. Here are some answers to frequently asked questions about resolving disputes during IRS audits in California.
Q: What triggers an IRS audit in California?
A: There are several things that can trigger an IRS audit. Unreported income is a big one, as well as large deductions and credits, and filing several years’ worth of amended tax returns. Excessive business dedication — especially those that can be personal deductions — can also be a red flag.
Q: How will you be notified of an IRS audit?
A: The IRS will notify you by mail—never by phone, email, or text. The notice will include details about the items under review and instructions on how to respond.
Q: If the IRS audits me, will the state of California audit me as well?
A: Not necessarily. While the IRS and the state of California do “share” information, that does not necessarily mean you will be audited by both. If you are a California business owner, audits from the Employment Development Department (EDD) are the most common audit.
Q: What types of audits are there?
A: The IRS has three types of audits: correspondence, office and field. The correspondence audit is the most common and that’s handled by mail and is usually somewhat simple. The office audit is when you will need to visit a local IRS office. Finally, the field audit is when the IRS visits your home or business.
Q: What should taxpayers do if they disagree with the audit findings?
A: If you disagree with an audit finding, there are generally three rules that govern whether you can appeal; and all three must be present. First, you receive a letter from the IRS stating that you have the right to do so. Second, you do not agree with the IRS’s decision with respect to your audit. Third, you did not sign an agreement form sent to you by the IRS. If you appeal, be prepared to clarify and support your position with facts and sound arguments.
Q: Should I hire someone to represent me in an IRS audit?
A: You have the right to representation in an IRS audit. You can hire an experienced tax attorney, a CPA or an enrolled agent. Those individuals, especially a tax attorney, can handle communication and negotiation with the IRS on your behalf.
Q: If I do hire representation, will the IRS think I’m guilty?
A: The IRS agent understands that you are busy with your own business and that it is more efficient for you to focus your time and energy running your business. In our experience, the government agent actually likes that an experienced person is working with them because in most cases we do their work for them. We know the format, the questions and the documentation that the agent will request. We review your information and provide it to the government agent in an organized fashion which saves the government agent’s time and energy.
Q: Why is it best to hire a tax attorney?
A: Attorneys have an ethical duty to always act in your best interest. When you hire an attorney, you have an attorney-client privilege. There is no client confidentiality between you and your accountant or tax preparer. When you hire a lawyer, you are allowed to freely communicate with your lawyer. If you face any criminal charges, your tax preparer or accountant will not provide this same protection. In most cases, he or she will be compelled to testify against you.
It’s normal to have several questions about IRS audits and what they mean for you as a taxpayer and California business owner. An experienced San Francisco tax attorney can help answer those questions for you and help in your dealings with the IRS in the event of an audit.
Allison Soares is a partner and tax attorney at Vanst Law LLP. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits from San Francisco to San Diego.
