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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.

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Streamlined Submission Audit | SDOP Audit Tax Lawyer

An increasing number of submissions under the Streamlined Domestic Offshore Procedures are subject to an IRS audit (hereinafter “Streamlined Submission Audit”). In this article, I will explain what a Streamlined Submission Audit is and what a taxpayer should expect during the Audit.

Streamlined Submission Audit: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is a voluntary disclosure option offered by the IRS since June of 2014 to noncompliant US taxpayers to settle their past tax noncompliance concerning foreign assets and foreign income at a reduced penalty rate. In order to participate in SDOP, a taxpayer must meet three main eligibility requirements – US tax residency, non-willfulness of prior noncompliance and absence of IRS examination.

SDOP is likely to be the most convenient and the least expensive voluntary disclosure option for taxpayers whose prior tax noncompliance was non-willful. SDOP is very popular; in fact, it has quickly surpassed the traditional IRS Offshore Voluntary Disclosure Program (“OVDP”) in the number of participants with over 18,000 submissions just in 2016.

The Origin of the Streamlined Submission Audit

Streamlined Submission Audit originates within the very nature of SDOP. Unlike OVDP, SDOP voluntary disclosures are not immediately subject to a comprehensive IRS review of tax return items (although, there is a review process which may lead to a Streamlined Submission Audit, but it is not as comprehensive as that of the OVDP prior to the Audit). Hence, the IRS reserved the right to audit any SDOP submission at any point within three years after the submission of the original SDOP voluntary disclosure package.

Streamlined Submission Audit: Process

The exact process of a Streamlined Submission Audit varies from case to case, but all of such audits have a similar format: initial letter with request for a meeting, meeting with an interview, review of submitted documents and (very likely) additional requests for information, interview of other involved individuals (such as a tax preparer) and, finally, the results of an audit are provided by the IRS to taxpayer(s) and/or the representative indicated on Form 2848.

A Streamlined Submission Audit commences in a way very similar to a regular IRS audit: a letter is sent to taxpayers and (if there is a Form 2848 on file) to their representative. The letter explains that the IRS decided to examine certain tax returns (usually all three years of amended tax returns) and asks for submission of all documentation and work papers that were used to prepare the amended returns. Additionally, the letter requests that the taxpayers’ representative (or taxpayers if not represented) contact the IRS agent in charge of the audit to schedule the initial meeting.

During the initial meeting, the IRS agent will review (at least to make sure he or she has what is needed) the documents supplied. In larger cases, the IRS will need a lot more time to later examine all of the submitted documents and see if additional documents are needed. If a case is very small, it is possible for an agent to cover everything in the first meeting, but it is very rare.

Also, during an initial meeting, there is going to be an interview of the taxpayer(s). I will discuss the interview separately in a different article.

Once the review of the initial package of documents is concluded, it is very likely that the IRS agent will have questions and additional document requests. The questions may be answered by the taxpayers’ attorney during a separate meeting with the agent; smaller questions may be settled over the phone.

If additional documentation is needed, an IRS agent will send out an additional request to taxpayers and/or their attorney. The answer will most likely need to be provided in writing.

Once the IRS completes its interview of other involved parties and reviews all evidence, it will make its decision and submit the results of the audit to the taxpayers and their tax attorney in writing. The taxpayers’ attorney will need to build a strategy with respect to the taxpayers’ response to the audit results depending on whether the taxpayers agree or disagree with the results of the audit.

Differences Between Streamlined Submission Audit and Regular IRS Audit

At first, it may seem that there are no big differences between a regular IRS audit and a Streamlined Submission Audit. While procedurally this may be correct, substantively it is not.

The greatest difference between the two types of IRS audits is the subject-matter involved. While a regular IRS audit will concentrate on the tax returns only, a Streamlined Submission Audit will involve everything: amended tax returns, FBARs, other information returns and, most importantly, Non-Willfulness Certification. In other words, a Streamlined Submission Audit will focus not only on whether the tax forms are correct, but also on whether the taxpayer was actually non-willful with respect to his prior tax noncompliance.

This difference in the subject-matter examination will carry over to other aspects of a Streamlined Submission Audit: the taxpayers’ interview will focus on their non-willfulness arguments, third-party interviews of original tax preparers become a regular feature (this is very different from a regular IRS audit when tax preparers may never be interviewed), and the final IRS results must necessarily make a decision on whether to challenge the taxpayers’ non-willfulness arguments.

Failure by a taxpayer to sustain his non-willfulness arguments may result in a disaster during a Streamlined Submission Audit with a potential referral to the Tax Division of the US Department of Justice for a criminal investigation.

This is why it is so important for a taxpayer subject to a Streamlined Submission Audit to retain the services of an experienced international tax lawyer to handle the audit professionally.

Contact Sherayzen Law Office for Professional Help With A Streamlined Submission Audit

If your submission under the Streamlined Domestic Offshore Procedures is being audited by the IRS, you need to contact Sherayzen Law Office as soon as possible. Our international tax law firm is highly experienced in offshore voluntary disclosures (including OVDP, SDOP, SFOP, “noisy disclosures”, “quiet disclosures”, et cetera) and the IRS audits of a voluntary disclosure.
In fact, we have handled voluntary disclosure cases at every stage of the process of a Streamlined Submission Audit described above. We can Help You!

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IRS Written Advice Defense: Adequate & Accurate Information | Tax Lawyer

This is the fourth article on the topic of the IRS Written Advice Defense under 26 U.S.C. §6404(f). The first three articles outlined the legal test for the Defense and described the first and the second prongs of the test. In this say, I will briefly discuss the final third prong of the IRS Written Advice Defense – the requirement to provide adequate and accurate description of facts.

IRS Written Advice Defense: Taxpayer Must Provide Adequate and Accurate Description of Facts

When a taxpayer asks the IRS for advice, he must provide adequate and accurate description of his facts based on which the IRS has to make its decision. If the taxpayer fails to supply the IRS with adequate and accurate information, then the IRS Written Advice Defense will fail. See Treas. Reg. § 301.6404-3(b)(4). It should be noted that the IRS “has no obligation to verify or correct the taxpayer’s submitted information.” Id.

This is a much more difficult task that it may appear, because “adequate” really means here a complete set of all material facts that may influence the IRS analysis. If the taxpayer provides only the facts that are favorable and omits the facts which are unfavorable, the IRS advice will not give the taxpayer the protection against imposition of future penalties that the he seeks.

This is why I strongly encourage taxpayers to retain tax attorneys to submit their written request for the IRS written advice. This is especially true in the area of US international tax law.

Contact Sherayzen Law Office for Professional Help With Your IRS Written Advice Defense And Any Other Reasonable Cause Defense

Sherayzen Law Office has an extraordinary experience in drafting Reasonable Cause Statements on various grounds, including IRS advice. We have drafted such statements in defense against imposed and potential FBAR, Form 926, 3520, 5471, 8621, 8865 and other IRS penalties.

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IRS Written Advice Defense & The Written Request | Tax Lawyers MN

This article is a continuation of the series of articles on the IRS Written Advice Defense. In the first article of this series, I outlined the legal test for the Defense. The second article of the series focused on the first prong of that test. In this essay, I would like to briefly highlight the second prong of this legal test: the IRS written Advice must be issued in response to a taxpayer’s written request.

IRS Written Advice Issued in Response to Written Request by the Taxpayer

This second prong of the IRS Written Advice Defense is not as simple as it seems at first. The main issue here is when a specific written request is considered to be made by a taxpayer. Obviously, if the taxpayer writes a written request himself, it was made “by a taxpayer”. What about a request made by a taxpayer’s representative?

The IRS regulations state that a written request from a taxpayer’s representative shall be considered a “written request by the taxpayer” only if two conditions are met. First, a taxpayer’s representative must be “an attorney, a certified public accountant, an enrolled agent, an enrolled actuary, or any other person permitted to represent the taxpayer before the Service and who is not disbarred or suspended from practice before the Service.” Treas. Reg. §301.6404-3(b)(3).

Second, “the written request for advice either is accompanied by a power of attorney that is signed by the taxpayer and that authorizes the representative to represent the taxpayer for purposes of the request, or such a power of attorney is currently on file with the Service.” Id.

The Written Request for the IRS Written Advice Must Be Properly Made

In a future article, I will describe the property abatement procedure with which the taxpayer’s written request must comply. For the purposes of this essay, I just wish to point out that this is the second major issue concerning written requests for the IRS Written Advice.

Contact Sherayzen Law Office for Professional Help With Your IRS Written Advice Defense And Any Other Reasonable Cause Defense

If the IRS has imposed penalties as a result of an audit of your tax return or FBAR, contact Sherayzen Law Office for professional help. We have helped US taxpayers around the world to deal with their IRS penalties, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!