Introduction
The IRS has increased scrutiny on high-net-worth individuals and international tax matters, making audits and disputes more common. Whether it’s an offshore account investigation, an unreported income dispute, or a complex tax filing, defending against the IRS requires strategic planning.
Most Common IRS Audit Triggers
- Unreported Foreign Accounts & Income: Failure to disclose offshore accounts can lead to severe penalties under FATCA.
- Large Charitable Deductions: Unsubstantiated donations often trigger audits.
- Use of Offshore Entities: Business structures perceived as tax avoidance schemes are highly scrutinized.
- Cryptocurrency Transactions: The IRS is aggressively auditing crypto gains and foreign holdings.
How to Respond to an IRS Audit Notice
- Step 1: Verify the Legitimacy of the Audit Notice – IRS scams are common; always confirm authenticity.
- Step 2: Gather All Relevant Documentation – Tax returns, bank statements, and supporting records should be readily available.
- Step 3: Engage a Tax Attorney or CPA – Professional representation is crucial for high-stakes audits.
- Step 4: Respond Promptly but Strategically – Avoid volunteering unnecessary information.
Strategies for Resolving High-Stakes Tax Disputes
- IRS Appeals Process: If the IRS’s determination is incorrect, filing an appeal may be the best course of action.
- Offer in Compromise (OIC): A potential settlement option for reducing tax liabilities.
- Tax Court Litigation: In cases where disputes escalate, legal representation is essential.
When to Settle vs. Fight IRS Claims
- Settling is ideal if:
- You lack documentation to dispute the claim.
- The cost of litigation outweighs the benefit of fighting.
- Fighting is necessary if:
- The IRS made an incorrect determination.
- The penalties are unjustified and can be challenged successfully.
Conclusion
IRS disputes can be complex and financially devastating. Understanding audit triggers, preparing documentation, and having expert representation can ensure a favorable resolution.
