IRS Audit Defense

IRS audits frequently originate from automated systems, third party reporting discrepancies, or statistical sampling which means many taxpayers are selected not because of misconduct but because algorithms flagged irregularities that may reflect normal financial activity. 

The IRS compares returns to data from employers, banks, brokers, payment processors, and foreign institutions. Even minor mismatches can trigger an audit.

Common triggers include income reporting discrepancies, large charitable deductions, unusual business expenses, cryptocurrency activity, significant cash deposits, foreign account disclosures, or corrected 1099 forms. Many of these issues are administrative rather than substantive. A business may rely on software that categorizes expenses incorrectly. A brokerage may issue revised tax documents after filing season. Payment platforms may report gross revenue without accounting for refunds or fees.

Auditors often begin examinations with incomplete context. They may assume that an expense category appears inflated, that deposits represent unreported income, or that third party information is correct even when it contains errors. IRS Audit Defense requires confronting these assumptions early and providing a clear, structured explanation.

IRS audits follow specific procedures that determine the scope of the examination, the documentation required, and how auditors evaluate taxpayer responses which means understanding the audit type is essential to building an effective defense. 

There are three primary audit formats: correspondence audits, office audits, and field audits.

Correspondence audits focus on specific line items such as charitable deductions, earned income credits, or reported income. Office audits require in person meetings with documentation for broader issues. Field audits involve examiners visiting a business or home to review operations, inventory, or financial systems. Field audits carry the greatest risk because they often lead to expanded inquiries or multi year examinations.

Auditors request documentation through Information Document Requests, which must be responded to carefully. Providing too little information can appear evasive while providing too much can inadvertently create new questions. SJKP LLP ensures that responses are complete, accurate, and strategically organized to avoid misunderstandings.

IRS Audit Defense relies on reconstructing financial records accurately because auditors often examine fragmented documents, bank deposits, or partial statements without understanding how transactions fit into the taxpayer’s overall financial reality.

Many taxpayers use accounting systems that rely on automated categorization which may not match IRS definitions. Others operate cash intensive businesses where deposits represent loans, reimbursements, or transfers rather than income.

Evidence review involves analyzing bank statements, accounting ledgers, receipts, invoices, payroll reports, digital transaction logs, cryptocurrency records, and foreign account documentation. IRS examiners frequently conduct a bank deposits analysis to estimate income. If deposits exceed reported revenue investigators may assume underreporting even when the difference reflects transfers between accounts or repayment of personal loans.

Financial reconstruction clarifies these discrepancies. Defense teams must show how income was earned, how expenses were categorized, and why records appear inconsistent. SJKP LLP collaborates with accountants, forensic financial experts, and industry specialists to develop accurate calculations and challenge incorrect IRS conclusions.

Effective IRS Audit Defense focuses on dismantling the narrative that discrepancies reflect misconduct because many issues arise from software limitations, accounting errors, inadequate record keeping, or misunderstanding of IRS rules rather than intentional misreporting. 

Taxpayers who demonstrate cooperation, transparency, and reasonable cause are far less likely to face penalties.

Good faith reliance on accountants or tax software is often a strong defense. Many taxpayers provide complete information to preparers and assume filings are accurate. If discrepancies arise because preparers misunderstood rules or software produced incorrect outputs the taxpayer should not be penalized for acting responsibly.

Procedural defenses are equally important. Auditors must follow specific notice requirements, deadlines, and documentation procedures. Failure to follow these rules can invalidate parts of the examination. Negotiation through the appeals process offers additional opportunities to reduce liabilities, withdraw penalties, and correct factual errors.

IRS audits can result in substantial tax assessments, penalties, and interest because auditors often rely on conservative interpretations of deductions, business expenses, and income documentation which means taxpayers may face liabilities that exceed what was originally owed even when errors were unintentional. 

Penalties vary depending on whether the IRS classifies the issue as negligence, substantial understatement, or fraud.

Negligence penalties apply when taxpayers fail to maintain adequate records. Substantial understatement penalties arise when the difference between reported and corrected income is large enough. Civil fraud penalties require proof of intent. Criminal exposure is limited to cases where the IRS believes taxpayers deliberately concealed income or falsified documents.

Long term consequences may include tax liens, credit damage, business disruption, and professional licensing issues. Immigration implications may arise for noncitizens because tax related findings affect visa eligibility. Even after an audit concludes taxpayers must adjust future reporting practices to avoid repeat scrutiny. SJKP LLP works to minimize assessments, negotiate settlements, and protect clients from broader consequences.

Clients choose SJKP LLP because IRS Audit Defense requires strategic organization, financial expertise, and deep knowledge of IRS procedure which most taxpayers and even many accountants cannot manage alone. 

Our attorneys evaluate the audit’s foundation, identify weaknesses in the examiner’s approach, and reconstruct financial activity with clarity and precision.

We guide clients through documentation requests, prepare explanations that reduce risk of escalation, challenge unsupported conclusions, and negotiate effectively through the appeals process. Whether representing individuals, small businesses, or complex entities we prioritize accuracy, fairness, and long term tax stability.

SJKP LLP is committed to defending clients in IRS audits with strategic insight and diligent advocacy. Our mission is to protect financial security, reduce exposure, and ensure that the IRS evaluates each case with full understanding rather than assumptions.