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What is a tax audit?

In the American system of self-reporting, we the taxpayers are legally required to provide certain information to the government, whether it is on an income tax return, 1099, Foreign Bank Account Report (FBAR), or any other of the thousands of forms the government requires taxpayers to submit. It is our responsibility to provide truthful and accurate information, and it is the government’s responsibility to verify the information we provide. Tax audits are how the information is verified.

Why is the State of Michigan or IRS auditing me?

Most commonly, audits are the result of the IRS or State of Michigan identifying “red flags” on a return, and want to verify those numbers. Generally speaking, the higher your income, the more likely it is that you will be audited. Sometimes, tax audits result from an informant’s tip. It is rare that an audit results from being randomly selected. In the end, it is never possible to know for sure why a particular return is being audited by the IRS or State of Michigan.

What should I expect in the tax audit process?

If a tax return is selected to audit, the case is assigned to an auditor with the IRS or the State of Michigan. The first step in the tax audit process is a request by the auditor for information from the taxpayer. These requests are usually in writing, and are subject to some very strict deadlines. Depending on the type of the audit, responses to the information requests can be submitted by mail, in person at a meeting in the auditor’s IRS or State of MI office, or at an in-person audit meeting at the taxpayer’s home or place of business.

Your response to the request for information is often times the most critical point of the audit. The story you tell in your response, and what documents you decide to provide, can set the tone for the entire audit. If you fail to respond to an audit notice, the auditor will simply assess a tax against you, and, if the tax is not paid, the account will be sent to collections. After the information is provided, the auditor will often times have follow-up questions and will issue another request for more information.

Alternatively, if the tax auditor has enough information to make a decision, then either changes will be made to your tax return, or everything will be accepted as-is, and a no-change audit will result. If you go through an audit, and changes to your return are being made, the IRS or State of Michigan auditor will usually try to assess penalties in addition to the tax. These penalties can range from less than 20% of the tax owed, to greater than the amount of the actual tax. This is another critical junction in the audit process where a zealous advocate can often times successfully argue for the penalties to be waived entirely, or at least minimized. If changes are made to your return, there is also a risk that the auditor will want to look at more years and more issues on each return.

Without a qualified tax lawyer, you are subject to the whims of the auditor. A skilled tax audit attorney, on the other hand, knows when to make strategic concessions to keep other issues from being audited. Contact us to put a Detroit, Michigan audit defense attorney to work at defending you in your audit.