Home | How an Initial Audit Determination Isn’t the Final Word With the IRS

How an Initial Audit Determination Isn’t the Final Word With the IRS

Aug 14, 2023

If you sent a question to your family, friends, and colleagues asking them what their biggest fear is concerning the Internal Revenue Service, I would expect 99% of them to respond with two simple words: an audit. And if I conducted this poll and gave this answer to an agent with the IRS, do you know what their response would be? “Great! Then we are doing our job!”

The reason the IRS agent would respond in this manner starts with the taxation policies and procedures in the United States. Remember, our annual reporting process is considered a “voluntary reporting system.” Taxpayers have the annual obligation to report their financial activities and how much they should owe in income taxes based on those activities. The IRS has instilled a fear that each return could be audited, thereby “inspiring” taxpayers to be honest with the self-reported tax due each year. This is why I believe the IRS agent would respond in such an enthusiastic manner. Take solace in the fact, however, that for the majority of U.S. taxpayers, the chances of getting audited by the IRS is less than 1%.

So, what do you do if you or a client is notified that the IRS Examinations Department will be auditing a 1040, 1065, or 1120 annual income tax return? By all means, do not ignore the communication! A tax professional, whether the taxpayer’s accountant, CPA, or tax resolution professionals like our team at Golden Lion Tax Solutions, should work with the agent assigned to comply with documentation and information requests. Failure to do so will cause the assigned agent to make assumptions and decisions about the return without consideration for the taxpayer’s position. The professional’s goal throughout the audit will be to fight for no changes to the original return unless it benefits the taxpayer or to minimize any changes that the IRS agent believes are appropriate upon further review of the financial activities of the taxpayer.

If the audit results come back with a less-than-desirable result, there are options, so don’t panic right away. The easiest option is to request an audit reconsideration, but this can only be done if:

  • the taxpayer did not sign the audit closing agreement (Form 906),
  • the taxpayer did not sign a compromise agreement,
  • the taxpayer did not sign an agreement on Form 870-D with the IRS Appeals Office,
  • if the amount owed is not the result of a final partnership item adjustment under TEFRA,
  • if the US Tax Court or another court has not issued a final determination on the tax liability, and
  • (this one is probably the biggest guideline) if the taxpayer filed an original tax return for the period in question.

An audit reconsideration request is used to reevaluate the results of an audit where additional tax was assessed and remains unpaid, or if a tax credit claimed was reversed. For this process, the taxpayer (or their representative) must be prepared to provide information or documentation that wasn’t previously considered during the original examination of the period in question.

A client came to us asking if we could help address an additional tax assessment determined through the audit of his 1040. He had already gone through the audit process and, through his own admission, “should have probably had someone represent me because it went bad.” Per the client’s advisement, he didn’t submit everything the agent asked for, and he got flustered during a phone call with the agent causing him to say, “Just make the decisions you are going to make. I’ll have to deal with it.” And that’s precisely what happened. The agent issued a Form 4549 assessing over $35,000 in additional income tax, penalties, and interest.

Our team compiled an audit reconsideration request challenging the decision and, through our negotiations, were able to reduce the assessed audit balance to less than $2,000, which was valid due to a non-qualified business expense claimed on the original return.

The IRS can be an intimidating agency to deal with, especially when it comes to questioning the information reported on a taxpayer’s 1040, 1065, or 1120. If you or your client finds themselves in this situation, contact the Golden Lion Tax Solutions team. Our experience and relentless pursuit of the best possible results can significantly impact any audit situation.


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Disclaimer: There are requirements that must be satisfied in order to qualify for some of the tax solutions we discuss on our website. Not all of our services will be suitable for every client. Golden Lion Tax Solutions is here to help you find the most appropriate solution to fit your situation.