Taxpayers have a variety of contacts with the IRS and other taxing agencies for reasons such as tax audits or tax appeals. In cases where a return has not been filed, first contact will be a letter requesting that the return be filed. If there are discrepancies between amounts reported on tax returns and those reported to IRS, there may be a proposal for an adjustment based upon unreported income. Initial contacts in these cases are made by correspondence and without any face-to-face contact with IRS personnel.
If your return is audited, there will be face-to-face contact. Meeting with an IRS agent can be a traumatic experience. Your work and honesty are being questioned. You will be put in the position of telling the truth or lying about awkward issues and in either case the answer will not be advantageous. The taxpayer needs seasoned representation to assess the extent of the problem, put the best face on the situation and get it resolved as promptly as possible, preferably without the taxpayer ever talking with anyone from IRS.
The IRS is interested in reconciling income reported on your return with that reported to IRS and it is always looking for unreported income. It is also looking for a proof of expenses (usually itemized deductions, employee business expenses, and expenses reported on Schedule C and other business schedules).
It is important to start the audit process with an audit by the taxpayer of the taxpayer’s return. It is critically important to understand all of the facts about the return and the positions that may be taken with the IRS. Is the return defensible? What are the weaknesses? These questions need to be answered before talking with the IRS.
Appeals and the Tax Court
Several levels of appeal exist in any tax audit. If the matter cannot be worked out with the revenue agent, the agent’s determinations can be appealed to the group manager and then to IRS Appeals. If a resolution cannot be worked out at that level, the matter can be taken to the United States Tax Court without the necessity of first paying the tax that the government claims to be due. In my years of trying cases for IRS in the Tax Court I came to appreciate the need for thorough preparation that leads to early settlement.