What to Know About Audit Defense
An IRS tax audit is among the most grueling, emotionally draining financial experiences a person can go through. That said, if the IRS selects your tax return for an audit, don’t panic. Take a deep breath, and stay calm. Although an audit can seem intimidating, you have resources at your disposal to make the process less stressful.
Most importantly, taxpayers have the right to hire representation to assist them during the tax audit investigation process. Only certain professionals can represent you during a tax audit, such as attorneys, CPAs, and enrolled agents. These audit defense representatives provide an array of services during an audit, including document preparation and strategic counseling.
Fight back against an IRS Audit with experienced tax attorneys and lawyers on your side. The team at Boxelder Consulting has an established track record representing taxpayers during audits. Whether you’re an individual or small business taxpayer, Boxelder can help you implement strategies in order to deal with the IRS and successfully complete the audit with as few scars as possible. In addition to negotiating with auditors and other tax authorities, our audit defense team can help you effectively fight back with balanced books and defensible financials.
To recap:
- A tax audit is a formal investigation of your records in order to verify a tax return.
- You have the right to hire representation to assist you during an audit.
- Representatives can assist with a wide range of tasks during an audit.
How Common Are Tax Audits?
Taxpayers will be glad to hear that tax audits are relatively rare. The vast majority of taxpayers will never be audited. Let’s look at the statistics.
In 2017, a total of 149,919,416 tax returns were submitted to the IRS. Out of nearly 150 million returns, less than one million – 933,785 returns – were selected for an audit. This is just 0.6 percent – the IRS audited less than one percent of all returns!
If you break down the statistics by income, things get a bit more nuanced. Generally speaking, however, individuals in higher income brackets have a greater chance of getting audited.
Here’s a breakdown by income of the percentage of individual returns audited by the IRS during fiscal year 2017:
| Adjusted Gross Income | 2018 Audit Rate |
| 0 | 2.04% |
| $1- $25,000 | 0.69% |
| $25,000-$50,000 | 0.48% |
| $50,000-$75,000 | 0.54% |
| $75,000-$100,000 | 0.45% |
| $100,000-$200,000 | 0.44% |
| $200,000-$500,000 | 0.53% |
| $500,000-$1,000,000 | 1.10% |
| 1,000,000-$5,000,000 | 2.21% |
| $5,000,000-$10,000,000 | 4.21% |
| over $10,000,000 | 6.66% |
For most taxpayers, the chance of being audited is even less than 0.6 percent. For taxpayers who earn $25,000 to $200,000 the audit rate is less than 0.5 percent. Those who make less than $25,000 actually have a higher audit rate, but this is because many of these taxpayers claim the earned income tax credit, and the IRS conducts many audits to ensure that the credit is not being claimed fraudulently.
The bottom line: tax audits may be daunting, but the probability of being selected for an audit is actually quite low.
IRS Audit Notices & Forms
The IRS is clear and concise in its letters and notifications – which are always sent by U.S. postal service mail. Here’s what you need to know about the most common letters, notices, and forms the IRS sends throughout the audit process:
CP2000 – Proposed Changes To Your Tax Return
If you’ve received a CP2000, the IRS is notifying you that the income or payment information they have on file doesn’t match the information you reported on your tax return. This discrepancy may cause an increase or decrease in your tax or may not change it at all. The notice also explains what information the IRS used to determine the proposed changes to your tax return.
Form 4564 – Information Document Request (IDR)
The IRS uses Form 4564 to request information from taxpayers during a tax audit. In many tax audits, the IRS will issue an IDR at the beginning of the audit and then issue additional Information Document Requests as the case progresses.
Letter 5077 – Delinquency Notice
If the IRS believes that a taxpayer has failed to fully respond to an IDR, it will initiate a three-step summons enforcement process. This summons enforcement process is mandatory. The IRS Examiner will first issue a “Delinquency Notice” (Letter 5077) within 10 days of the IDR response date, and should give the taxpayer no more than 15 days to comply. However, the IRS has discretion to extend the 15-day deadline for responding if the circumstances warrant such an extension.
Letter 5078 – Pre-Summons Letter
If the taxpayer fails to comply with the deadline in the Delinquency Notice, the IRS will issue a “Pre-Summons Letter” (Letter 5078). The Pre-Summons Letter will generally be sent within 14 days of the deadline in the Delinquency Notice. The Pre-Summons Letter should allow the taxpayer an additional 10 calendar days from the date of the letter to comply.
Fight Back Against IRS Audits
At Boxelder Consulting, we understand that each and every case we handle is unique — every person has their own story. This is why we handle each project on a case-by-case approach. Our experienced team of licensed tax professionals will fight audits for you by developing a tailored defense strategy aimed at guaranteeing you the best possible outcome.
The audit procedure is complex and can cause a great deal of stress. If you have been selected for an audit, don’t delay! Sign up for a free consultation with Denver’s best IRS audit defense team today. Having an experienced representative on your side will make a world of difference.