Category Archives: IRS Tax Audit

The State You Live In and IRS Tax Audits

When time to file federal and state income taxes approaches, a common question that arises is: What are my chances of being audited by the IRS or my state tax authority? While the answer to this question is not simple, there are several factors that can increase the odds of facing a tax audit. While we control many of these factors such as being sure to complete all paperwork and include all required documentation when filing taxes, there are some factors that can be a little more difficult to control.

In an article on, California, Colorado and Nevada had the most users of who faced IRS tax audits in 2014, while New York, Massachusetts, and Alabama faced the most state tax audits. Included in the top ten for most IRS tax audits was also Vermont, Missouri, New Mexico, Arizona, Massachusetts, Florida, and Rhode Island. Rounding out the top ten states with the most tax audits were Delaware, Michigan, Mississippi, Arkansas, Oregon, Montana, and Maine.

While being number one is a great thing for sports fans, reading these statistics may have a tendency to cause a California taxpayer to cringe. However, this statistic should not worry you since California is also the state where the most income tax returns are filed with the IRS. According to the IRS of 240,075,782 total returns filed for fiscal year 2013, 28,590,971 tax returns were filed in California. This is a significantly greater amount of returns than any other state. For example, in Ohio 8,478,748 tax returns were filed, North Carolina had 6,726,971 returns filed, Indiana had only 4,629,917 returns filed, Tennessee had 4,301,190 returns filed, and Kentucky only had 2,874,239 returns filed. This case of less returns filed leading to less tax audits doesn’t hold true in the case of Colorado. While taxauditdefense reported Colorado as the state facing the second most tax audits, Colorado only had 4,367,301 returns filed, and Nevada which was reported as third only had 2,064,632 returns filed.

It seems that in some instances, more returns can certainly lead to more audits, however as proven by the listed statistics some states do seem to face more tax audits. Ultimately, it is most important to focus on the factors that you can control when filing your taxes with both the IRS and state taxation authorities.



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What Problem Does The IRS Have With Me?

IRS Tax Problems for small business owners, individuals and familiesIt is not uncommon for those who are facing problems with the IRS to not actually know what that specific problem is. This presents an issue in itself, since it is difficult to prepare to defend against a problem with the IRS without knowing what tax dispute you will need to be defending in order to appropriately prepare. It also happens that as time passes, records may have been misplaced or damaged, or may not even have arrived at the IRS. And it’s sometimes the case where the IRS also loses track of some or all of your documents.

The IRS maintains a Master Report on each of us. For a flat fixed fee, as your tax attorney we can obtain the IRS master report and transcripts for your account, and prepare a comprehensive report for you outlining the issues that the IRS has with your account. As part of this service we provide easy to understand details informing  you of the initial cause of your  tax problem, and what the IRS views to be your  problem. The report will also include details on the extent of your tax liability, or what the IRS believes to be your tax liability. Additionally, we will outline the best options for you to resolve  your tax matter with the IRS.

One thing that holds true is that the longer we wait to understand and plan a resolution to problems with the IRS, the worse the problems will likely grow. This includes incurring additional fees and penalties, wage garnishments, bank levies, tax liens, and in some rare cases can lead to jail time. Therefore, we work with our clients to help them to understand their tax issues, the level of significance of the issues they are facing with the IRS, and what can be done to resolve their tax problems.

What to Expect at a Tax Audit

The mere sound of the words “tax audit” sends chilling thoughts through taxpayer’s minds.  There are different types of tax audits.  There are tax audits that just require a taxpayer to mail in information to substantiate an entry he or she made on an income tax return.  These are called Correspondence Audits.  And then there are tax audits that require the taxpayer to attend a meeting at the taxing authority’s office.  Likewise, there are tax audits where a field agent visits the taxpayer at his or her home or place of business.

In-Person Audits

Although most tax audits are the kind where you just need to send in proof of a deduction, expense, or other entry on your tax return, the in-person audits cause the greatest anxiety to taxpayers because of the uncertainty of what will occur at the tax audit and then what the fallout or consequences will be once the agent has received the taxpayer’s responses during the tax audit.

In-person audits can be in the form of office audits or field audits.  The office audit requests that you appear at the office of the IRS or other taxing authority office and bring with you specific documentation.  The field audit can take place at your home, place of business, your attorney’s office or your accountant’s office.

During the in-person audit, the agent is seeking to gather facts of your personal situation, i.e. your assets and standard of living as well as your business income, expenses, and operations.  The agent will request a broad range of information and you should comply with only reasonable requests.  Based upon the letters you receive prior to the audit, you should provide only that information related to the tax years in question subject to the audit.  In other words, don’t allow the agent to go on a “fishing expedition”.  The type of documentation that should be provided to the agent includes personal and business bank statements, expense reports, income reports, canceled checks, credit card statements, mileage logs, receipts, and corporate records.

At the end of the tax audit there may be additional documentation that the agent may request of you to send in within a certain period of time.  Nevertheless, after the audit is completed, the agent will prepare a report showing the findings of the tax audit.  The report may show a finding that additional taxes and penalties may be applicable.  If you disagree with the agent’s findings, you have a right to appeal the findings.  If you agree with the agent’s findings, then the next step would be to negotiate a payment plan, including an installment agreement.  The IRS or the taxing authority may request that you waive your right to appeal, which you do not have to sign.

The taxpayer, whether an individual or a business, may appeal an agent’s findings within 30 days after receiving the agent’s report.  There are different avenues to make an appeal.  A taxpayer may appeal to the agent’s supervisor, to the IRS directly, to the U.S. Court of Federal Claims, or to the U.S. District Court.  If an appeal is not pursued within this 30 day period, a Notice of Deficiency will be issued.  Thereafter, the taxpayer’s appeal rights are to the U.S. Tax Court within 90 days of issuance of this Notice of Deficiency.