IRS Audit

An IRS Audit is frightening and dangerous.

If you have received a notice from the IRS or Colorado Department of Revenue that your tax return is being audited, you should hire Denver Tax Attorney Philip Falco to represent you during your IRS tax audit.

We have experience in the following types of audits:

  • IRS audits – in person, and otherwise.
  • IRS 1099-K Credit Card to revenue audits.
  • IRS business expense audits, typically automobile mileage, supplies, travel & entertainment.
  • S Corp audits and flow-through audits.
  • 1040, Schedule A and Schedule E audits.
  • CDR 104 audits.
  • Audits during criminal investigations.
  • Colorado Department of Labor and Unemployment audits*.  This can have unforeseen devastating consequence, professional representation is advised.
  • United States Department of Labor hour and wage audits.

The sooner you secure representation the better.  Philip Falco has handled many audits and, according to his experience, many needless issues can be avoided,

The goal is to contain an audit as much as possible.  The fear is that irregularities would be uncovered and the scope of the audit expanded and compounded.  This is our focus: containment and conclusion.  We have represented many taxpayers in tax audits.  Experience is really worth the investment in this specialized area.

Competent audit representation commands many skills including:

  • Painstaking attention to detail;
  • Unquestionable grasp of the Internal Revenue Code.
  • Organization.
  • Issue Spotting.
  • Argument articulation.
  • Courage to defend the taxpayer is critical.

I can tell you from past experience that collections can lead to audits or mini audits.  I have represented businesses where employment tax is owed for the failure to pay or file form 941.  Revenue Agents are assigned to these case quickly.  The revenue agent will get to know the business quickly as well.  Problems also arise from the failure to file form 940.  A Notice of Levy, Form 668-A(ICS) issued by an Revenue Agent will signal a potential audit or ‘visit’.

General Types of Audits:

  • Field audit.  These are usually the most comprehensive IRS audit and are performed by experienced IRS agents.
  • IRS office audit.  This is done at the IRS office.  These appear to be straightforward audits but are peppered with booby traps.  IRS office audits typically expand in scope by examining additional years and additional categories.
  • Correspondence audit.  This is usually done by IRS letter requests.  They can be founded in math errors and errors in filing status. However, we have noticed an increase in these audits.  They typically focus on questionable matters entered on Form 2106, Employee Business Expenses.  These audit present dangers particularly because they span multiple years. They begin with one year but once an unfavorable result is sustained it can spill over to additional years.

IRS Audit Letters

There are various types of form letters they send. Here are some of the most common IRS audit letters  you may receive:

  • IRS Letter 3391 – 30 Day Nonfiler Letter: See our page on Unfiled Tax Returns.
  • Form 4564 – Information Document Request.  This form is used in an IRS office audit.  The agent will typically request a host of documents for the taxpayer to bring to the IRS location.  It is critical to have someone represent you at this meeting.
  • IRS Letter 2202.  This the notice of examination that is computer generated and reviewed by an IRS examining officer.  The IRS computers select returns for examination based on anomalies and an IRS examining office reviews the computer selection.  The result is embodied in IRS Letter 2202.
  • Notice of Audit and Examination: This is the notice to the taxpayer that his or her return will be audited and the IRS wants to meet. You must quickly respond to this notice.
  • IRS Letter 950 – 30 Day Letter of Deficiency. This letter is sent after the IRS audit.  It reports outstanding issues, deficiencies and over assessments.
  • IRS Letter 525 – This is the, “hello, you are being audited” letter.  It includes IRS proposed changes, which you could simply agree to.  A response within 30 days is required.
  • IRS Letter 531 – Notice of Deficiency also referred to as a 90-day Letter): Notice of additional tax for the tax year identified in the letter. Caution is urged regarding this letter.
  • IRS CP 2000 Notice: Automatic Adjustment Notice: This is a common adjustment notice.
  • IRS Letter 692, Request for Consideration of Additional Findings: You will have to act quickly usually within 15 days.
  • IRS Letter 915. This is a cover-type letter that transmits the audit findings to the taxpayer.
  • Form 4549 – Income Tax Examination Changes.  This usually concludes an audit.  This notifies the taxpayer of the amount due per the IRS examiners audit.  The changes are subject to acceptance by the IRS Area Director, IRA Area Manager, IRS Specialty Tax Program Chief, or IRS Director of Field Operations.
  • Form 886-A – Explanation of Items.  This provides the detail of the Income Tax Examination Changes.  This form is also used to provide additional detail of an IRS request.  For example, the IRS could request an explanation as to whether an employee business expense was reimbursed by the employer (thus nullifying its deductibility).
  • Form 4605-A, Examination Changes – Partnerships, Fiduciaries, Small Business Corps. & Domestic Intl. Sales Corp.
  • If you are successful you will receive a no change letter – Letter 3401, No Change Report Transmittal Letter, or Letter 3401-S, Flow Through Entity No Change Transmittal Letter.
  • IRS Form 5564 – Waiver of Notice of Deficiency.  If you agree to the audit changes, you can waive the time to object so as to save interest.
  • IRS Notice CP 2501.  This is an under reporter notice.  We handle many of these.  These can be typically cured by supplying appropriate documentation to the IRS.
  • IRS Notice CP 2000.  This notice is issued if various deadlines are ignored such as the time period in the CP2501.  The CP 2000 will provide additional time to respond. If ignored, a notice of deficiency will be issued.
  • IRS Letter 987.  This is the closing letter.  This is a notification that your audit has been closed.
  • IRS Letter 566-S.  This is an opening letter of an IRS correspondence Audit.  This letter will detail the evidence and documents requested by the IRS such as mileage log (mileage audit).  Deadlines must be observed.
  • Form 13825 Employee Business Expense Questionnaire.  This is a questionnaire used by the IRS in Form 2106 Audits.

If you are unsure of the appropriate actions to take, please call us.

Click here to review our blog entry on IRS Pre-Audit Investigations.  These are typically referred to as IRS audit red flags.

IRS Settlements, Appeals and Tax Litigation

If the IRS is auditing your return, we can negotiate a settlement on your behalf. In the event that a settlement cannot be reached, we can assist you in the appeals process.

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