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Amending Tax Returns during An IRS Audit | IRS Audit Lawyer & Attorney

One of the most interesting questions that arise during an IRS audit is whether a taxpayer (or his tax attorney) should amend his tax returns during an IRS audit. Amending tax returns during an IRS audit may offer great benefits as long as it is done properly, but this is not a strategy available in every case. In this article, I would like to discuss the benefits and dangers of amending tax returns during an IRS audit.

Potential Benefits of Amending Tax Returns During an IRS Audit

The main job of a tax attorney during an IRS audit is to protect his client as well as make it easy and convenient for the IRS agent to make a decision that will favor his client. One of the ways to accomplish this is to do the necessary audit groundwork for the IRS agent by amending all tax returns subject to audit before your initial meeting with the IRS agent.

In such cases, amending tax returns is likely to bring the taxpayer various benefits. I will concentrate here on the three main benefits. First, amending tax returns shows that the taxpayer is willing to cooperate with the IRS far and beyond his prescribed obligations.

Second, by amending tax returns and providing supporting documentation, the tax attorney is likely to “buy” a lot of goodwill from the agent, who will appreciate that the attorney is trying to reduce his workload and make all information easily accessible. In some situations, such extensive cooperation may convince the agent not to expand the audit beyond the already audited years.

Finally, depending on the situation, it may show a rift between past noncompliance and present compliance for reasonable cause purposes. This is especially relevant in situations where the original tax preparer can be held accountable for the taxpayer’s past noncompliance.

Potential Drawbacks of Amending Tax Returns During an IRS Audit

There are, however, various risks associated with this strategy. Again, I will concentrate on the three main drawbacks of the strategy. First, the amended tax returns have to be prepared correctly. If the amended returns are incorrect, then the taxpayer would be getting himself into even bigger troubles.

Second, in some situations, a taxpayer may not benefit from prolonging the case, especially where there are Statute of Limitations issues concerning unaudited years. By prematurely exposing the taxpayer’s mistakes on the original return, the taxpayer may give the IRS additional time to open up another year for audit. It is questionable whether this concern outweighs the benefits of amending tax returns; one really should look at the totality of circumstances of the specific case in question and make the decision based on this analysis.

Third, by shifting the workload from the IRS agent to the taxpayer’s tax attorney, the taxpayer is likely to incur substantially higher legal fees. Therefore, a cost-benefit analysis must be done by the attorney to make sure that the proposed strategy of amending tax returns is cost-effective and does not result in unduly high legal fees.

Procedural Concerns: Do NOT File Amended Tax Returns; Send Them to the IRS Agent

One of the biggest procedural mistakes with respect to the strategy of amending tax returns that I see in my practice is incorrect filing of amended tax returns. By “incorrect filing”, I mean here the filing of amended tax returns directly with the IRS bypassing the IRS agent in charge of the audit.

This is a big mistake, because it goes against the proper procedure of having all adjustments to the audited original returns done by the IRS agent in charge of the case. Moreover, the IRS agent will feel ignored and to some degree betrayed by the taxpayer, and the taxpayer will likely lose all goodwill that he has accumulated with the agent up to that point.

The proper procedure for amending tax returns during an IRS audit is to prepare the amended tax returns and send them to the IRS agent in charge of the audit with supporting documentation.

Contact Sherayzen Law Office for Amending Tax Returns During an IRS Audit

Amending tax returns may not a be a strategy that is available in all cases. If done properly, in many cases, it will offer great benefits to a taxpayer, while it may result in augmenting the already existing problems in other cases. This type of a decision should not be made by the taxpayer, but by an experienced IRS audit lawyer.

This is why you should contact the professional IRS audit team of Sherayzen Law Office. Headed by our highly-experienced tax attorney, Mr. Eugene Sherayzen, Sherayzen Law Office has helped US taxpayers around the world to deal with various types of IRS audits, including audits of offshore voluntary disclosures and high net-worth audits.

Contact Us Today to Schedule Your Confidential Consultation!

IRS Compliance Campaigns | US International Tax Attorney and Lawyer

On January 31, 2017, the IRS announced a complete new approach to tax enforcement – Issue-Focused IRS Compliance Campaigns. A total of thirteen IRS compliance campaigns were announced; all of them will be administered by the LB&I (Large Business and International) division of the IRS. Let’s explore in more detail this highly important IRS announcement.

Background Information: IRS Compliance Campaigns is the Second Phase of the LB&I Restructuring

The announcement of the IRS Compliance Campaigns does not come as a surprise. The IRS has been talking about the LB&I division restructuring for a long while and the first details of the new campaigns already appeared as early as September of 2015.

In fact, the IRS Compliance Campaigns represent the second phase of this restructuring. Already in the fall of 2015, the LB&I completed the first phase – the administrative re-organization of the LB&I into nine units, including four geographic practice areas and five issue-based practice areas.

The first phase of the LB&I reorganization focused on the administrative structure of the Division. The IRS Compliance Campaigns are meant to reorganize the Division’s tax enforcement process in a way that fits best the new administrative structure.

IRS Compliance Campaigns are Focused on Specific Tax Issues

On January 31, 2017, during a conference call announcing the new IRS Compliance Campaigns, the IRS stated that each campaign is meant to provide “a holistic response to an item of either known or potential compliance risks.” In other words, each Campaign is focused on a specific tax issue which carries a heightened noncompliance risk.

This focus on specific issues fits perfectly with the new organizational structure of the LB&I which we already discussed above. Again, this is all part of a large IRS plan to devote its scarce resources towards the areas which have significant noncompliance risk and, hence, require a more intense level of IRS scrutiny.

Issue-Focused IRS Compliance Campaigns: What Areas Will the Campaigns Affect?

As of March 21, 2017, the IRS identified thirteen such high-risk areas. A separate campaign was assigned to each of these areas. The campaigns can be grouped according to the IRS LB&I Practice Areas.

1. Cross Border Activities Practice Area

The following campaigns are included within the Cross Border Activities Practice Area of the LB&I Division: Form 1120-F Non-Filer Campaign and Repatriation Campaign.

2. Enterprise Activity Practice Area

The Enterprise Activity Practice Area of the LB&I Division contains more campaigns than any other area by a large margin. Seven different campaigns are launched within this Practice Area: IRC 48C Energy Credit; Domestic Production Activities Deduction, Multi-Channel Video Program Distributors (MVPD’s) and TV Broadcasters; Micro-Captive Insurance Campaign; Related Party Transactions; Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign; Basket Transactions Campaign; and Land Developers – Completed Contract Method (CCM) Campaign.

3. Pass-Through Entities Area

Two huge campaigns are launched in the Pass-Through Entities Area of the LB&I Division: TEFRA Linkage Plan Strategy Campaign and S Corporation Losses Claimed in Excess of Basis Campaign.

4. Treaty and Transfer Pricing Operations Practice Area

One campaign is launched within the Treaty and Transfer Pricing Operations Practice Area: the Inbound Distributor Campaign.

5. Withholding and International Individual Compliance Practice Area

Only one, but highly important campaign was launched within the Withholding and International Individual Compliance Practice Area – OVDP Declines-Withdrawals Campaign.

The taxpayers should remember that they may be subject to multiple IRS Compliance Campaigns at the same time.

IRS Compliance Campaigns: Treatment Streams

The goal of the campaigns is to promote tax compliance – even more fundamentally, to change the taxpayer behavior in general, replacing noncompliance with compliance.

In order to achieve this goal, the IRS may utilize a variety of “treatment streams” as part of a campaign. The first and most fundamental treatment stream is the traditional audit, which will remain the ultimate weapon in all IRS Compliance Campaigns.

Second, the IRS stated that it will also include “soft letters” to taxpayers. The idea behind the soft letters is to draw a taxpayer’s attention to a particular item or issue on the taxpayer’s return, explain the IRS position and give the taxpayer an opportunity to amend his return himself (i.e. without resorting to an audit). If the taxpayer does not do so after he receives the IRS letter, an audit will most likely follow.

Additionally, the IRS stated that it will pursue four additional strategies: guidance, new forms and instructions, published practice units, and practitioner and stakeholder outreach.

More IRS Compliance Campaigns Will Be Launched in the Future

The IRS has affirmatively stated that the number of the IRS Compliance Campaigns will increase in the future. At this point, it is not yet known what particular areas the new Campaigns will affect.

Contact Sherayzen Law Office for Professional Help If You Are Affected by One or More of the IRS Compliance Campaigns

If you are affected by any of the IRS campaigns or you have received a soft letter from the IRS, contact Sherayzen Law Office for professional help. Our team of tax professionals, headed by Attorney Eugene Sherayzen, will thoroughly analyze your case, create a plan to move forward to resolve the situation, implement the plan and defend your position against the IRS.