Preparing for a High-Stakes IRS Audit: Documentation Strategies, Burden of Proof, and Common Issues That Trigger Expanded Examinations
A high-stakes IRS audit is an evidence dispute. The questions are what the taxpayer must prove, what records establish it, and whether new facts justify a broader examination. The IRS may examine financial records to verify a return. Before producing records or factual explanations, a tax attorney in Atlanta can assess requested material and exposure.
What Must the Taxpayer Prove?
The IRS states that taxpayers generally bear the burden of substantiating return entries, deductions, and statements. Internal Revenue Code § 6001 requires records sufficient to establish tax liability. Deductions require statutory authorization, a rule recognized by the Supreme Court in New Colonial Ice Co. v. Helvering. Unsupported deductions, unexplained deposits, losses, or basis calculations can become disputed adjustments.
What Evidence Carries the Burden?
The audit file should connect each challenged item to contemporaneous proof: contracts, invoices, receipts, canceled checks, bank statements, payroll records, ledgers, Forms 1099, K-1s, and basis documents. IRC § 7491 can shift the burden on factual issues in court only when the taxpayer presents credible evidence, satisfies substantiation and recordkeeping requirements, and cooperates with reasonable IRS requests. An IRS audit attorney can structure a response around the issue being examined.
What Can Expand the Examination?
The Internal Revenue Manual requires examiners to identify large, unusual, or questionable items and permits the scope to expand when significant issues appear. Prior or subsequent years may be added, and related returns may receive scrutiny. Income mismatches, recurring losses, questionable business expenses, related-party transactions, and inconsistent reporting can expose additional issues.
When an IRS Audit Lawyer Should Enter the Examination
The Law Office of Max Benkel handles IRS audits and tax controversies. Our former IRS attorney with more than 35 years handling IRS tax matters, personally handles the firm’s cases. Contact us today before a document production or statement fixes the factual record against you.
