Fighting IRS Audit Results in California Federal Tax Evasion Cases

Dealing with an IRS audit can be incredibly stressful, I totally get it. The tax code is super complicated, and even honest mistakes can trigger an audit. If you received a notice from the IRS about an audit on your federal taxes in California, don’t panic. There are things you can do to fight the results. I wrote this article to walk through the process and share some tips. I’m not a lawyer, so definitely consult with a tax attorney if you need specific legal advice. But hopefully this gives you a good starting point for understanding audits and your options.

Why You Might Get Audited in California

First off, why are you getting audited in the first place? There’s a few common triggers the IRS looks for:

• Math errors on your return – if your numbers don’t add up, it raises a red flag
• Unreported income – if you don’t report all your income sources, the IRS may catch it by matching documents
• Suspicious deductions – claiming deductions you can’t back up with documentation
• Business expenses – write-offs for your small business can get tricky, so they get extra scrutiny

The IRS also uses some formulas to flag returns for audit. For example, they look at your income bracket and occupation. So high-earners or cash businesses like restaurants tend to get audited more. Of course, getting audited one year increases your chances you’ll get audited again. The IRS shares audit info with state agencies like California’s Franchise Tax Board (FTB). So if you get an IRS audit, expect a letter from the FTB too. Two-for-one audit special, ugh.

The Different Stages of an IRS Audit in California

Not all audits are created equal. The IRS has a few different types, depending on how deep they want to dig:

• Correspondence audit – The IRS sends you a letter asking for more documentation on certain items. This is the most common and simplest audit.
• In-person audit – You’ll have to meet with an IRS agent at a local office and go through your return line-by-line. This is for more complex audits.
• Field audit – An IRS agent will come to your home or business to go through your records. These are reserved for taxpayers with very complex returns.

Obviously, the more complex your audit, the more stressful it will be. Most are correspondence audits though, so don’t freak out too much!

California Tax Evasion Charges

Now let’s talk about the worst case scenario – what happens if your audit reveals serious tax evasion? Tax evasion is purposefully underpaying your taxes through fraudulent means. Oof, not good.

If the IRS believes you committed fraud, they may refer your case for criminal prosecution. You could face felony tax evasion charges under Section 7201 of the federal tax code. Penalties include:

• Up to 5 years in prison
• Fines up to $250,000 for individuals or $500,000 for corporations
• Paying back taxes plus interest and penalties

At the state level, the California Franchise Tax Board can file criminal charges for tax evasion under Revenue and Taxation Code Section 19405. This is also a felony with fines up to $50,000 and up to 5 years imprisonment. Not fun.

Defenses Against California Tax Evasion Charges

If you’re facing criminal tax charges, don’t panic! There are legal defenses your tax attorney can use to fight them:

• You made a legitimate mistake on your taxes and had no intent to defraud.
• You had a good faith belief you were using the tax code correctly.
• You relied on professional tax advice from an accountant or attorney.
• The IRS made procedural errors in the audit process.

A skilled tax attorney can argue these defenses and negotiate with prosecutors for reduced charges or penalties. Don’t go it alone!

What to Do During an IRS Audit

Okay, back to the audit process itself. Here are some tips if you get that dreaded letter from the IRS:

• Stay calm – I know, easier said than done. But freaking out won’t help anything.
• Gather your records – Dig up bank statements, receipts, business logs, etc. to support your return.
• Be polite and professional with the IRS agent. Building rapport can help move things along.
• Don’t ignore deadlines for providing documents.
• Consider hiring a tax attorney or CPA for help responding.
• Don’t lie or get defensive. Be cooperative to show good faith.

I’d also recommend hiring a tax pro as early in the process as possible. An experienced attorney can help manage document requests, join calls or meetings, and negotiate with the IRS on your behalf.

Appealing IRS Audit Results

What if you go through the audit and still end up with a big tax bill? First off, take a deep breath. Just because the IRS says you owe more doesn’t mean they’re right. You still have options:

• Request a supervisor review if you disagree with the audit findings.
• Appeal the audit results within 30 days of receiving your notice.
• Submit additional documentation the auditor may have missed.
• Negotiate a payment plan or Offer in Compromise if you can’t afford the bill.
• File a petition in U.S. Tax Court to fight the results before making any payment.

An appeals officer takes a fresh look at your case. Be sure to have solid documentation and arguments explaining why the audit conclusions were wrong. A tax attorney can help craft a strong appeal and represent you.

Dealing with the Fallout of a Failed Audit

Okay, what if you go through appeals and still can’t get the audit bill reduced? Here are some options:

• Payment plans – The IRS may let you pay what you owe in installments over several years. This avoids harsh collection actions.
• Offer in Compromise – You can settle your tax debt for less than the full amount if you can prove financial hardship.
• Penalty abatement – You may qualify to get penalties waived if you show reasonable cause.
• Currently Not Collectible – The IRS may temporarily halt collections if forcing payment would cause economic hardship.

I’d recommend consulting a tax relief attorney to negotiate the best post-audit solution. They know how to work with the IRS to settle tax debts while avoiding aggressive collections like levies or property seizures.

Avoiding Future Audits

Getting audited once definitely increases your chances of getting audited again. Here are some tips to avoid repeat audits:

• File your returns accurately and on time every year.
• Keep meticulous records to support all deductions and income sources.
• Hire a tax pro to prepare your return if it’s complex.
• Respond promptly to all IRS notices to avoid escalation.
• If audited, fully cooperate and keep detailed notes.
• Consider an audit insurance policy that provides representation.

Following the tax rules and keeping great records are your best defenses against IRS scrutiny!

Don’t Go It Alone, Get Help

Dealing with the IRS is intimidating even for tax pros. Don’t try to handle an audit alone. The tax attorneys at [Your Firm] can help! We have decades of experience successfully fighting IRS audit results in California. Call us today for a free consultation. We’re here to answer your questions and discuss how we can defend your case. This too shall pass!