IRS Audit Attorney

With more than a decade of legal, business, and tax experience, the team at Milikowsky Tax Law is on hand to help defend your business in an IRS audit.

There are few things more threatening to a business owner than a letter from the IRS.

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.

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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. 

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What IRS Audits Will Look Like in 2026: Key Risks for Real Estate Owners and Business Leaders

If you own real estate or run a business, you might be wondering what IRS audits will look like in 2026. The good news is that the IRS is not ramping up random audits as much as some had expected. The bad news is that they are getting better at spotting tax mistakes, and they are focusing more on people with complex filings such as real estate investors and business owners.

So, what does that mean for you? Let’s break it down.

How IRS Audits Are Changing in 2026

Fewer Audits, But Smarter Ones

The IRS was supposed to receive a significant funding boost to increase audits, but in 2026, a portion of that money remains frozen. That means they probably will not be auditing a large number of extra taxpayers. Instead, they are becoming more selective about who they audit and focusing on areas where mistakes or fraud are more likely.

If you have a simple W-2 job and take the standard deduction, you are probably in the clear. But if you own a business, have rental properties, or report large deductions, your tax return could be flagged for a closer look.

More Technology, More Scrutiny

Even with budget adjustments, the IRS continues to invest in artificial intelligence and data analysis tools to catch tax mistakes more efficiently. This means:

  • They can spot discrepancies faster, such as when your reported income does not match what a bank or payment processor reports.
  • They can compare your deductions to industry standards and flag anything that looks too high.
  • They can track cryptocurrency transactions and other digital payments more effectively than before.

So while fewer people may get audited, those who do could face a more thorough review.

What Real Estate Owners Should Watch For in 2026

Rental Income and Deductions

The IRS wants to make sure you are properly reporting rental income, especially if you use platforms like Airbnb or Vrbo. They also check deductions such as repairs, depreciation, and mortgage interest to ensure they are not exaggerated.

What to do: Keep clear records of all rental income and expenses. Separate improvements, which must be depreciated, from repairs, which can be deducted immediately.

Passive vs. Active Income

Real estate investors can qualify for certain tax benefits if they are considered “real estate professionals” by IRS standards. However, this requires proving that you spend most of your working hours on real estate activities.

If you claim real estate professional status but also have a full-time job in another industry, that is a red flag. The IRS has been cracking down on this, so be ready to provide documentation of your hours if you claim this status.

What to do: If you are claiming real estate professional status, keep a log of your time spent managing properties. Be realistic. If you are working 40 or more hours a week at another job, the IRS may not believe your claim.

1031 Exchanges

A 1031 exchange allows you to defer taxes when selling an investment property by reinvesting the proceeds into a similar property. The IRS often scrutinizes these transactions to ensure they meet strict timing and qualification rules.

What to do: Work with a tax professional when doing a 1031 exchange to ensure you follow all IRS guidelines. Even small mistakes can disqualify the tax benefits.

What Business Owners Should Watch For in 2026

Business Deductions

Business expenses are deductible, but the IRS is always watching for deductions that seem excessive or personal in nature. Common areas that raise flags include:

  • Large meal and entertainment expenses
  • Home office deductions that do not meet IRS guidelines
  • Expensive travel that could be considered personal

What to do: Make sure your deductions are reasonable and well-documented. If you claim a home office deduction, it must be used exclusively for business.

Payroll Taxes and Worker Classification

The IRS is still cracking down on businesses that misclassify employees as independent contractors to avoid payroll taxes. If your business relies heavily on contractors, the IRS may check whether they should be classified as employees.

What to do: Ensure your contractors truly qualify as independent under IRS rules. If they work set hours and rely on your company for most of their income, they might need to be classified as employees.

S-Corp and Partnership Income

If you own an S-corporation or partnership, the IRS may review how you are handling distributions versus salary. Taking low or no salary while paying yourself large distributions is a red flag.

What to do: If you are an S-corp owner, pay yourself a reasonable salary based on industry standards before taking large distributions.

What Happens If You Get Audited

An IRS audit does not necessarily mean you did something wrong, but it does mean they want more information. Here is how the process works:

  • You will get a letter. The IRS will notify you by mail if you are being audited. They will not call or email.
  • They will request specific documents. Depending on the issue, they may ask for receipts, invoices, bank statements, or other records.
  • The audit can be done by mail, at an IRS office, or in person. Most audits are done via mail, but more complex cases may require an in-person meeting.
  • If they find mistakes, you may owe taxes, penalties, or interest. If the IRS determines you underpaid, they will send a bill. You have the right to appeal if you disagree.

How to Protect Yourself

Even if you are confident in your tax filings, it is always good to be prepared in case the IRS comes knocking. Here is how:

  • Keep clear records. Save receipts, invoices, and bank statements for at least three years. For more complex returns, save them longer. Good documentation is your best defense in an audit.
  • Report income accurately. The IRS gets income reports from banks, employers, and payment platforms. If your numbers do not match, you are more likely to get audited.
  • Avoid rounding numbers. If your tax return is full of round numbers such as $5,000 or $10,000, it looks suspicious. Report actual amounts, even if they are unusual.
  • Work with a tax professional. If your taxes are complex, an experienced accountant or tax attorney can help ensure compliance and defend you if an audit happens.

Final Thoughts

While the IRS is not dramatically increasing audits in 2026, they are becoming smarter about how they choose who to audit. If you own real estate or run a business, now is the time to review your tax filings and make sure everything is in order.

At Milikowsky Tax Law, we specialize in IRS audit defense for real estate owners, business investors, and high-net-worth individuals. If you are concerned about increased audit risk in 2026, contact us to discuss how we can help protect your interests.

Contact Milikowsky Tax Law today to discuss your audit risk in 2026.

FAQ 

How far back can the IRS audit my business in 2026?
In most cases, the IRS looks back three years. However, if there are substantial errors, fraud, or carried-forward losses, they can examine much older returns.

Is the IRS still focused on cryptocurrency in 2026?
Yes. The IRS is expanding its ability to track and analyze cryptocurrency and digital asset transactions. These are a growing focus area for audits.

Why should I work with a tax attorney instead of only a CPA?
Your CPA prepares and files your return, but only a tax attorney is equipped to defend you in legal proceedings with the IRS. If you receive an audit notice, legal representation can protect your rights and reduce your liability.

Are business owners more likely to be audited than individuals?
Yes. Business owners, real estate investors, and high-net-worth individuals face greater scrutiny because their tax filings are more complex and involve higher-dollar amounts.