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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 Audit Interview | Streamlined Audit Tax Lawyers

In an earlier article, I described the main features of an IRS audit of a voluntary disclosure made pursuant to the Streamlined Domestic Submission Procedures (“Streamlined Submission Audit”). Today, I would like to discuss a very specific feature of this process – Streamlined Audit Interview.

Streamlined Audit Interview: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is a special offshore voluntary disclosure program initiated by the IRS in 2014. SDOP allows US taxpayers to remedy their past tax noncompliance concerning the reporting of foreign assets and foreign income while paying a highly reduced 5% Miscellaneous Offshore Penalty. The reason for such a lenient treatment is that the taxpayers must certify that their prior noncompliance with US international tax laws was non-willful.

Streamlined Audit Interview: General Description

Virtually every IRS field audit will involve an attempt to interview the audited taxpayer(s). The concept of a Streamlined Audit Interview describes a situation where an audited taxpayer is interviewed specifically in the context of a Streamlined Submission Audit.

Streamlined Audit Interview: Main Differences from Regular IRS Audit Interview

In many ways, a regular IRS audit interview is similar to a Streamlined Audit Interview. In fact, procedurally, there are very few differences: both audits involve the same type of scheduling procedures, same interview format and, with respect to audited tax returns, very similar questions.

The main difference between a regular IRS audit interview and the Streamlined Audit Interview lies in the fact that the latter will involve the examination of the audited taxpayer’s non-willfulness with respect to prior tax noncompliance – i.e. whether the taxpayer carried his burden of proof to participate in SDOP in the first place. In other words, the difference between the two types of audits is in the substantive legal issues to be discussed.

There are also differences in the potential stakes. A failure for the taxpayer to substantiate his original non-willfulness arguments may lead the IRS to impose heavy penalties and even refer the case to the US Department of Justice’s Tax Division for criminal prosecution.

Finally, a Streamlined Audit Interview is likely to involve a much broader spectrum of issues than just amended tax returns. For example, there could be questions concerning FBARs, sources of foreign account balances, US assets purchased with undisclosed foreign funds, et cetera.

Streamlined Audit Interview: Extensive Preparation Is Necessary

A taxpayer should prepare for a Streamlined Audit Interview. It should be remembered that this interview may happen two or even almost three years from the time when the SDOP voluntary disclosure package was originally submitted. Hence, it is important to refresh the memory of the taxpayer so that he would be able to respond to the IRS questions (instead of constantly saying “I have no recollection”, thereby creating an impression as if he had to hide something).

The taxpayer should also be prepared on how to properly answer a question. Again, the idea is to avoid unnecessary suspicions and an impression that he has something to hide. This why the taxpayer’s answers should be firm and clear in order to eliminate any doubt of their meaning.

In every case, there are going to be weak or negative facts. The temptation to avoid a discussion of negative facts is huge, but it should be resisted. The taxpayer should be prepared to speak of them boldly, explain these facts and show how they fit into his overall non-willfulness arguments.

A taxpayer should never be trained in lying to the IRS or obfuscating the facts. Never, under any circumstances, should an attorney allow his client to commit a perjury, especially in the context of a voluntary disclosure based on the taxpayer’s non-willfulness. The outcome of this unethical strategy is likely to be disastrous (the IRS is likely to find out the truth in any case) and may result in criminal charges filed against the client, even if his original tax noncompliance was non-willful.

Being honest is of utmost importance in a Streamlined Audit Interview. This, however, does not preclude an attorney from employing certain strategies as described above to prevent unnecessary complications by the failure of a taxpayer to express himself clearly or creating a temptation on the part of the IRS to go on a “fishing expedition”.

Contact Sherayzen Law Office for Professional Help With an Audit of Your Streamlined Submission and a Streamlined Audit Interview

If your Streamlined Submission is being audited by the IRS, you should contact Sherayzen Law Office as soon as possible for professional help. Sherayzen Law Office is a highly experienced international tax law firm that specializes in all stages of offshore voluntary disclosures, including IRS audits of a Streamlined Submission and federal court representation.

We can help You! Contact Us Today to Schedule Your Confidential Consultation!