You know that feeling in school when you’ve studied hard for a test and felt extremely confident taking it, but you still get that pit of nerves and uncertainty in your stomach right before the teacher hands back the grades? Or even worse, the feeling in your stomach when the teacher is about to hand back a test you did not feel confident about. Getting a notice from the IRS that your taxes are going to be audited can kind of feel like that, but even worse.
For most people, an IRS audit is a terrifying prospect. After all, accuracy related penalties from an audit can result in fines as high as 20% of the understatement amount, or as high as 40% for certain gross valuation misstatements. That could be a devastating blow for a small business, or even a larger business when you account for the fact that you’ll also have to pay interest on those penalties that will accrue from the day your return was due to the day the penalty is paid off. Additionally, when you start talking about willful tax fraud, even higher fines and jail time could be on the line.
While you are certainly not required to hire an attorney for an audit, and you could conceivably handle the process on your own, with so much at stake it is usually worthwhile for you to hire an experienced tax attorney like Morgan Maxwell. Below are some of the things a tax attorney can do for you during an IRS audit.
1. Not testify against you
Some people may prefer to hire a CPA or use their return preparer to get through an audit, but if the audit results in a trial those people could be forced to testify against you. With a tax attorney, all of your interactions will be protected under attorney-client privilege.
2. Save you time
An experienced tax attorney will know what to do and when to do it. You are probably not an expert in tax law and an audit can be incredibly time-consuming if you are trying to figure things out on the fly—not the mention the possibility you could misinterpret something or make a mistake. Trust in an attorney who knows the ins and outs of tax law.
3. Protect you from making a mistake
It’s easy to make a mistake during an audit that could cost you thousands of dollars. As previously mentioned, if you are not a tax expert there is a very high potential for you to slip up in some way during an audit. Furthermore, there are limits to the questions you are required to answer from the IRS, and an experienced tax attorney can help prevent you from giving more information than you need or want to give.
4. Help you prepare
A tax attorney can review your returns and tell you what schedules and specific items will likely become focuses of the audit, that way you can prepare ahead of time to back up and defend your numbers or find any issues yourself and take proactive action.
5. Avoid face-to-face with IRS agent
You can give power of attorney to your tax lawyer and he or she can then sit in for you during most, if not all face-to-face meetings with IRS agents. They can even sign agreements on your behalf. This can save you time and avoid putting you under even more stress from the audit.
The above points are just some of the advantages of utilizing a tax lawyer during an IRS audit. If you have questions about your taxes or you are facing an audit, give Morgan Maxwell a call to discuss whether you might need representation to protect your interests.
Written by E. Morgan Maxwell
Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.
