Minns & Arnett is a Houston, TX based law firm that works with clients through each stage of the IRS audit process, from administrative audits up to and including litigation in federal court. Getting an IRS Audit notification is stressful, whether its failure to pay 941s, overstating a deduction or classifying workers as independent contractors instead of employees, it is crucial to hire an experienced tax fraud controversy and litigation attorney.
A few civil tax issues include:
- Internal Revenue Service Audit and Appeals: The purpose of the audit is to verify that you have accurately reported income and expenses on your tax returns. We prefer our clients not have any direct contact with the IRS. Just because you have been selected for an audit does not mean that there is a problem with your tax return. Sometimes the IRS selects a return based on statistical information and sometimes they select a return because the IRS was conducting an exam of a business partner or investor. The IRS will always send you a letter; they will not call you to inform you that you have been selected for an audit or to collect past due taxes. There are two audit methods the IRS uses, one is called in-person, and the other is a correspondence audit or an audit through the mail. Generally, the IRS cannot go back more than three years if they find a substantial error they can go back up to six years. There are three possible results: 1) no change (means the IRS agrees with your return) 2) Agreed (means you agree with the changes the IRS proposed) and 3) Disagreed (means you don’t agree with the changes the IRS suggested). If you do not agree with the changes, the IRS proposed you can request a conference with the IRS manager, go to IRS mediation, or file an appeal.
- Eggshell Audit: Called an “eggshell” audit because it feels like you are walking on eggshells. This type of audit has underlying criminal issues. A revenue agent will review personal returns (IRS form 1040) and/or corporate returns (IRS Form 1120) and the supporting documentation. If proof cannot be provided that establishes the return is accurate the result of the audit could result in severe civil penalties (ex: 75% fraud penalty) or criminal charges. An eggshell audit should always be handled by an attorney with criminal tax experience. The attorney may hire a Kovel accountant to assist on the case. Your return preparer should never handle an eggshell audit. The IRS agent will look at badges or indicators of fraud such as: omitting entire sources of income, inability to explain substantial increases in net worth, substantial personal expenditures exceeding reported resources, two sets of books, fictitious entities and items, concealing bank accounts, brokerage accounts and other property, failing to file a tax return, distribution of profits to fictitious partners, and etc.
- Special Enforcement Program (SEP): This is a unique program in the IRS that examines complex financial transactions. The revenue agents in the Special Enforcement Program are financial investigative specialists and forensic accountants. They are experts in identifying and developing cases with potential fraud. According to the IRS, SEP’s goal is to "enhance voluntary compliance and to promote public confidence in the tax system. This maximum deterrence is generated by examining those cases which significantly impact the public and assisting in the investigation and prosecution of prominent or notorious individuals who attempt to evade or defeat the tax system.” https://www.irs.gov/irm/part4/irm_04-016-001 It is imperative to hire counsel that is experienced in criminal tax, not just IRS audits if the Special Enforcement Program contacts you.
- Wage Levy: If the IRS determines you owe money they can seize your wages. Each pay period part of your wages will be sent to the IRS until the IRS has determined that you have paid your overdue tax or you make other arrangements with the IRS, such as an offer in compromise or a payment plan.
- Tax Court Litigation: The United States Tax Court is the only court (not including bankruptcy) that allows a taxpayer to dispute a tax liability before you have paid the amount in dispute. Minns handled one of the largest refund cases in US history. See Dixon v. Commissioner.