An audit can be a time-consuming process. While you cannot avoid a tax audit, you can minimize your risk of an audit by avoiding potential flags on their tax return. The most frequent IRS audits are caused by inconsistencies or errors in your tax return that raise red flags in the eyes of the IRS.
When you work with Milikowsky Tax Law, you get more than an experienced tax litigation attorney. You get an experienced business and tax advisor who can work with you to reduce your chances of being audited, with our comprehensive tax return assessment system and years of business experience.
California’s Top IRS Audit Attorney
Our leading tax litigation attorney, John Milikowsky, has decades of experience representing countless businesses in legal tax matters. Mr. Milikowsky is dedicated to relentlessly defending his clients in everything from state and federal tax audits to criminal tax investigations. As a full-service tax law firm, we frequently work with business owners to empower owners to identify issues on their own tax returns. While there is no way to guarantee you will avoid a tax audit, we can teach you to significantly minimize your risk of an audit.
Milikowsky Tax Law Defends Businesses in IRS Audits
When you’re faced with the formidable presence of a tax audit, don’t panic. Reach out to Milikowsky Tax Law, and we will protect your company to keep your business in business. Our skilled tax litigation attorneys will protect your rights every step of the way.
Whether you’ve just received a letter from the IRS, or you need help analyzing your legal rights and financial data reported on your tax returns, contact us today. The team at Milikowsky Tax Law is here to help.
San Diego Tax Attorney – Your Relentless Advocate in IRS Audits
Business owners may not be sure where to start if IRS audits their company. However, an IRS audit doesn’t have to overwhelm your life or impede your ability to conduct business. With the experienced team at Milikwosky Tax Law, you can navigate the process of an IRS audit secure in the knowledge that your tax attorneys are advocating for you every day.
There is little to no margin for error during an audit, a tight timetable, and potentially severe consequences for a poorly handled interaction with IRS. Unlike CPAs who do not have attorney-client privilege, attorneys are able to speak with your IRS officer on your behalf without risk of subpoena or summons of records discussed. A qualified attorney can, review your documents with an expert eye, create the right strategy for you, represent you or your business, and provide valuable advice and guidance.
If you receive a letter from IRS confirming your business tax return has been selected for examination, review your return and identify the items that will likely be investigated so you can be prepared. Then, before communicating with IRS, reach out to an experienced IRS audit attorney. Having a game plan is critical. You want to be honest and prepared when speaking with your IRS revenue agent.
Anytime you file taxes, there is a chance that your tax return might be audited by the Internal Revenue Service (IRS). The agency conducts standard procedures to find any errors or discrepancies among taxpayers. The audit process is meticulous and, should you find yourself under the scrutiny of IRS, will require detailed information from you.
In the article below, you’ll learn about the audit process and frequently asked questions surrounding IRS audits.
Why was I selected for an IRS Audit?
There are different reasons you may be flagged for IRS audits. Some are due to random checks; however, you have a low chance of being audited this way. Most taxpayers have less than a 0.6% chance of receiving a random audit check.
IRS runs tax returns through its Discriminant Information Function (DIF) system to continually update their database and make sure they are tracking industry benchmarks for each industry and tax bracket.
The DIF system also checks for incorrect tax filing information. Any discrepancies in tax forms, such as an imbalance of tax returns, a discrepancy between reported earnings and employer filings, or unreported cash transactions by one member of a transactional party, will trigger DIF to send your return to an IRS audit officer.
People are more susceptible to an audit if they:
- Earn less than $25,000 or more than $500,000
- File incorrect or incomplete returns
- Have large numbers of cash transactions
- Claim a disproportionate number of deductions
- Are self-employed
- Have a home-based business
- Have a cash business
- Have foreign assets
Sometimes you can be audited as a result of your business partners or investors going through an audit.
How Will I Know If I am Selected for an Audit?
You will know if you are selected for an audit if you receive a verified letter in the mail from IRS. They do not call to notify you about your audit.
What Do I Do If I’m selected for an Audit?
If you or your business are selected for an audit, make sure you read all of the information sent to you in your audit notification letter. The letter and accompanying information request packet will notify you as to what entity is being audited (business or personal) what year(s) are under review and who your auditor is. Once you know what IRS needs, make sure you collect all of the records and supporting documentation requested (but nothing additional). You will need to submit records from banks, vendors, and businesses you have worked with, invoices and pay stubs, payroll records, and medical expenses among other information.
Should I Hire an IRS Tax Attorney to Help Me?
We suggest contacting a qualified tax attorney to help guide you through your audit, to ensure you are timely, responsive, compliant, and do not unintentionally increase the scope of your audit to other areas of your business or personal finances that would otherwise remain unscrutinized.. There is little to no margin for error during an audit, a tight timetable, and potentially severe consequences to a poorly handled interaction with IRS. Unlike CPAs who do not have attorney-client privilege, attorneys are able to speak with your IRS officer on your behalf without risk of subpoena or summons of records discussed. A qualified attorney can, review your documents with an expert eye, create the right strategy for you, represent you or your business, and provide valuable advice and guidance.
How long do I have to reply to an IRS audit?
You have 30 days to reply to the initial audit letter. Do not hesitate, and make sure you take the appropriate steps early on. IRS is not likely to provide extensions unless you have a good reason. Your attorney can help by advocating for more time with the IRS agent. A good attorney will know many of your local IRS auditors and have strong relationships built on well-structured prior cases and mutual respect.
How Long Do Audits Take?
The time it takes to conduct an audit depends on the case. It fluctuates depending on:
- The seriousness of the tax reporting error
- When and whether the right information is provided to IRS
- Communication between the person being audited and IRS officer
How Many Years of Tax Returns Can IRS audit?
IRS audits tax returns from the past three years; however, most are from the past two years. Only when IRS agents find discrepancies within the audit they are conducting do they dig for information older than three years. Most audits do not look for information past six years. Though in cases of criminal audits IRS can look back 9 years and longer.
If you or someone you know received an audit letter from IRS, reach out to our expert team at Milikowsky Tax Law. We have over a decade of experience working with IRS and tax audits and are experts in defending business owners in the face of IRS or other government agency audits.
IRS Wants to Look at Your Bank Account
Bank accounts serve as a tool for personal and private finances. In the past, bank accounts were not typically investigated or monitored by the Internal Revenue Service (IRS) unless a taxpayer experienced an audit. However, following a proposal by the Biden Administration, IRS can now look into your bank account.
Watch our full video below for a detailed explanation of why IRS wants to look into bank accounts.
Read on to learn why IRS wants to look into your account, what information they’re looking for, and how this financial reporting will work.
Why Does IRS Want to Look into Your Bank Account?
IRS’ goal is to find account holders who use personal checking accounts to avoid paying full tax amounts and narrow the tax gap.
What is the Tax Gap?
The tax gap is the difference between taxes owed and taxes collected. According to the U.S. Department of Treasury, the tax gap amounts to approximately $600 billion annually and has exceeded $7 trillion in unpaid taxes over the last decade. The U.S. Department of Treasury also claims the wealthiest one percent of Americans alone evade over $163 billion in taxes each year.
How Will This Financial Reporting Work?
According to the U.S. Treasury, banks and financial institutions will include “just two additional numbers to the information that they already supply to taxpayers and the IRS.”
What Information Will IRS Look At?
The “two additional numbers” IRS is asking banks and institutions to report are:
How Will IRS Use This Financial Information?
IRS will compare the annual tax flow of account holders against their tax returns to determine if the account holder is likely paying the full amount of taxes or if the account holder should be audited.
What Other Financial Information Will IRS Look at?
The Treasury claims “the scope of this information sharing is extremely limited.” Further, the Treasury reiterates that banks will not share individual spending or transactions, nor will IRS have the ability to track such transactions.
In short, no individual spending information will reviewed–only the total sum of deposits and withdrawals.
What Other Information Does IRS Already Have Access To?
The IRS obtains information on taxpayers from sources such as:
From this information, IRS likely already knew about each taxpayer’s accounts, but will now know what funds are going in and out of those same accounts as well.
What Are the Risks of IRS Looking into Bank Accounts?
IRS looking into personal checking accounts can lead to additional and unnecessary audits as well as violate bankers’ privacy. There are multiple explanations for why money coming into your bank account–whether business or personal–is not income.
How Can IRS Looking into Bank Accounts Affect Small Business Owners?
Banks reporting deposits and withdrawals to IRS may lead to additional audits for small business owners (SBOs)–even if the SBOs are paying their taxes fully and correctly.
For example, a small business owner may deposit $1,000,000 into their bank account but only report $600,000 of income. The bank will report the $1,000,000, exposing the difference between the original deposit and the amount the SBO reported; this difference could potentially lead to an IRS audit as the IRS will want more information on the unreported income. More specifically, IRS will want to know if the SBO should be paying taxes on the $400,000.
However, there are several reasons that an SBO may deposit income and not report the full deposit amount, such as:
How Is This Financial Reporting Different Than IRS Audits?
During our client’s audit processes, our office performs a bank deposit analysis. We’ll add up the total deposits for the year, review the total cash flow, and compare that to the tax return. If these two figures are off, we’ll meet with the client to discuss the discrepancies and ask them to justify whether each deposit is or is not income.
In an audit, IRS will conduct a similar analysis.
However, the difference is that IRS only had access to this information in an audit instead of on a day-to-day level. IRS shouldn’t have access to the banking information of all Americans with accounts in the United States; it is an unnecessary invasion of privacy.
Do you know what to do if your business’ tax return was flagged for an audit by IRS? Learn more here.