Being contacted by the IRS for an audit can invoke immediate feelings of stress, panic and uncertainty, especially if you’re a small-business owner. You probably already have too much on your plate and worrying about your business being examined under the IRS’ microscope is the last thing you need. When there’s so much on the line, like your business’ financial future and, perhaps equally important, your sanity, the best thing to do is hire a professional to represent you in the audit.
Hiring someone to represent you in an audit helps in a few ways: it ensures that the auditor only receives the required information (taxpayers who go it alone often divulge too much, which can expand the scope of the audit and possibly worsen the outcome for the taxpayer); it puts someone on your side who can work to minimize any penalties or liability and, finally, it helps keep the auditor in check since the right tax pro will know if an auditor is right or wrong.
The IRS allows three types of tax pros to represent taxpayers in an audit: Certified Public Accountants (CPA), Enrolled Agents (EA) and tax attorneys. Giving a tax pro the power to represent you in an audit is as simple as filling out IRS form 2848, Power of Attorney and Declaration of Representative. Once that form is signed and submitted, you no longer have to communicate personally with the IRS (your tax pro will handle communications from here), which for many taxpayers is an immediate relief.
Deciding not to go it alone with an audit is only the first step, however. The next is deciding exactly who will represent you. While you could choose a CPA or an EA, there are clear and critical advantages to choosing a tax attorney, including:
1. Confidentiality. Thanks to attorney-client privilege, communications between you and your tax attorney are confidential. While there is CPA-client privilege, it’s limited only to Federal/State tax matters. A CPA could be subpoenaed to testify against you in an IRS court case, but an attorney could never divulge private information that you had discussed with him/her.
2. Ability to litigate. CPAs and EAs do not have the same ability to litigate as a tax attorney does, so if there’s even the smallest chance that your case might go to court, you’re going to want an attorney to represent you.
3. Knowledge and experience. A good tax attorney has in-depth knowledge of the tax code and regulations and also understands how to deal with any bureaucratic and legal complexities that may arise. Further, tax attorneys who have experience dealing with the IRS know where the IRS looks for vulnerabilities and can employ strategies that are proven to defend your case.
4. Approach. Attorneys are trained in the adversarial system, whereas CPAs and EAs are trained in compliance. This means that an attorney advocates for your interests and is willing to help position your audit in the best light possible. For example, if you don’t have receipts available, an attorney will work to prove your expenses via circumstantial evidence. So, if you need to prove mileage for which you don’t have records, an attorney will use things like your calendar, emails, averages from other professionals in your industry and other circumstantial evidence to prove your mileage.
For more information on the differences between tax attorneys, CPAs and EAs and to learn about why you should hire a law firm over a tax settlement firm to help with tax debt, read our blog post on the subject here.
Get Help with Your Taxes
If you have a question about the above content or need help with your taxes, please call us at 303-688-0944 to schedule a free, 30-minute consultation with a member of our Tax Team.