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.
What to Do If You Receive an ERC Denial Letter from the IRS
Receiving a denial letter for the Employee Retention Credit (ERC) from the IRS can be stressful, but taking immediate and strategic action can help minimize potential financial consequences.
Here are the steps you should follow to address the situation effectively.
1. File an Appeal Within 30 Days
The first and most urgent step is to file an appeal. The IRS provides only 30 days from the date on the denial letter to submit your appeal. Missing this window could result in waiving your rights to dispute the decision, so it’s critical to act quickly.
During the appeals process, you will need to gather all relevant documentation that supports your claim. This may include:
Consult with a tax attorney or CPA who specializes in ERC to ensure your appeal is as strong and comprehensive as possible.
2. Consider Amending Your Income Tax Return
If you determine that the denial was justified, or if you find errors in your original ERC filing, you may need to amend your income tax return. Here’s why this step is essential:
ERC Adjustments Impact Deductions:
When you initially claimed the ERC, you were required to reduce the amount of wages and payroll taxes reported as expenses on your income tax return. This is because the credit effectively reimbursed you for those expenses.
Double-Dipping Is Prohibited:
The IRS does not allow businesses to deduct wages and payroll taxes that were offset by the ERC credit. If your claim is denied and you were not entitled to the credit, those expenses can be added back to your return.
Potential Refund or Reduced Tax Balance:
Amending your return could result in a refund or at least reduce your tax liability. For example, if you report higher wages and payroll taxes as expenses, it may lower your taxable income and overall tax burden.
To determine the deadline for filing an amended return and assess the potential impact, consult with a tax professional. Acting promptly can ensure you remain compliant with IRS regulations while mitigating financial repercussions.
3. Establish a Payment Plan with the IRS
If the denial results in you owing money to the IRS, you may be eligible to set up a payment plan or installment agreement. This option can make the repayment process more manageable, especially for businesses facing cash flow challenges.
Here’s what you need to know about the process:
To request an installment agreement, businesses must file Form 433-B, which provides a detailed financial overview, including:
Businesses must demonstrate they lack the assets or income to pay the debt in full immediately. If approved, the IRS will allow payments over time, alleviating immediate financial strain.
Understanding ERC Eligibility
Before appealing a denial or amending your tax return, it’s crucial to verify whether your business met the ERC requirements. There are three key criteria for qualification:
Your business must be considered a qualified employer under the ERC guidelines, which generally includes businesses affected by COVID-19.
The wages must have been paid to W-2 employees, and the amounts must meet specific criteria outlined by the IRS.
Your business must have been fully or partially suspended due to a government order, such as a state or local mandate limiting operations.
For example, in California, Governor Gavin Newsom issued executive orders restricting non-essential business activities. However, businesses classified as essential, such as those in construction, may not qualify unless they can prove a significant impact on their operations.
Common Reasons for ERC Denial
Understanding why your claim was denied can help you determine the best course of action. Common reasons for denial include:
If you suspect the denial was due to a misunderstanding or oversight, consulting a tax attorney can help clarify your eligibility and strengthen your appeal.
The Importance of Early Action
Delaying action after receiving an ERC denial letter can lead to compounded financial and legal issues. Taking proactive steps, such as filing an appeal, amending your tax return, or establishing a payment plan, can help you stay compliant and mitigate potential penalties.
How Milikowsky Tax Law Can Help
Navigating an ERC denial requires expertise and precision. At Milikowsky Tax Law, we specialize in helping businesses resolve complex tax issues, including ERC disputes. Our team can assist with:
Final Thoughts
If you’ve received an ERC denial letter, don’t panic—but don’t wait, either. The steps you take now can significantly impact your financial future. Whether it’s filing an appeal, amending your return, or setting up a payment plan, addressing the issue promptly and strategically is essential.
For personalized guidance and expert support, contact Milikowsky Tax Law today. Our team is here to help you navigate the complexities of ERC disputes and safeguard your business’s financial health.
Need Assistance?
The IRS is actively auditing ERC claims, with over 300,000 requests currently under investigation. If you need help navigating an IRS audit of your ERC claim, contact John Milikowsky at Milikowsky Tax Law for expert guidance.