IRS Audit Representation & Tax Controversy Defense

Correspondence Audits

The most common form. Conducted entirely by mail with a specific IRS campus. The IRS requests documentation for one or more items on your return. Scope is narrow but escalates quickly if responses are incomplete or inconsistent. SVT manages the correspondence, drafts substantiated responses, and ensures nothing outside the stated scope is volunteered.

Office Audits

Conducted at an IRS Service Center with a tax compliance officer. You or your representative presents documentation in person. Office audits often involve business expenses, home office deductions, and Schedule C income. SVT prepares a complete document package in advance so the meeting is controlled and the scope stays defined.

Field Audits

A revenue agent conducts the exam at your place of business. Field audits are reserved for more complex returns and carry the highest risk of expansion. SVT builds an examination notebook, trains your staff on what to say and not say during the site visit, and manages all direct contact with the revenue agent on your behalf. Your revenue agent speaks to us, not to you.

AMT and ISO Examinations

ISO exercise spread is a preference item for AMT purposes under IRC §56(b)(3). High-value option exercises generate AMT exposure that many taxpayers and preparers underestimate. When the IRS challenges AMT calculations on large ISO exercises, Al's background in equity compensation tax positions SVT to build the technical defense from statute and regulations, not just from the return itself.

R&D Credit and §174 Examinations

R&D credit claims and §174 R&E capitalization positions are on the IRS examination radar, particularly for companies with large credits relative to revenues. The documentation requirements are specific and the IRS looks for contemporaneous records tied to qualified activities and employees. SVT builds and defends these positions using the same substantiation framework we use to prepare the original credit study.

FBAR and Foreign Account Examinations

FinCEN FBAR examinations and IRS foreign account issues carry penalty exposure that dwarfs most domestic tax adjustments. Non-willful FBAR penalties can reach $10,000 per account per year; willful penalties reach the greater of $100,000 or 50% of account value per year. SVT works with outside counsel when criminal exposure is a factor, and handles the civil controversy representation directly for non-willful matters.

Innocent Spouse Relief

When a joint return contains an understatement that results in a tax liability, both spouses are jointly and severally liable for the full amount, regardless of who earned the income or who prepared the return. IRC §6015 provides three paths to relief for a spouse who did not know about, and had no reason to know about, the erroneous item.

• §6015(b) traditional innocent spouse relief for erroneous items
• §6015(c) separation of liability election for divorced or separated spouses
• §6015(f) equitable relief when neither (b) nor (c) applies
• Form 8857 preparation and supporting narrative
• Appeals and Tax Court review of denied relief requests

Penalty Abatement

IRS penalties for late filing, late payment, and accuracy-related issues can equal 20 to 25 percent of the tax due, plus interest that continues to accrue. They are not automatic and final. First-Time Abatement (FTA) is available to taxpayers with a clean compliance history without requiring any showing of cause. Reasonable cause abatement requires a well-documented factual narrative.

• First-Time Abatement (FTA) for failure-to-file and failure-to-pay penalties
• Reasonable cause narrative and documentation package
• Accuracy-related penalty challenges under IRC §6662
• Penalty Appeals Program request if initial abatement is denied
• International information return penalties (5471, 5472, 3520) abatement requests

Voluntary Disclosure Programs

Coming forward proactively to correct unreported foreign accounts or domestic income almost always produces better outcomes than waiting to be found. The IRS offers formal disclosure pathways that cap civil penalties and, for non-willful conduct, eliminate criminal referral risk. The right program depends on the facts, the duration, the amounts, and whether the conduct was willful.

• Streamlined Filing Compliance Procedures (domestic and offshore) for non-willful conduct
• IRS Criminal Investigation Voluntary Disclosure Program (CI-VDP) for willful conduct
• FBAR penalty mitigation and willfulness analysis
• Quiet disclosure risk assessment and amended return strategy
• Coordination with criminal defense counsel when warranted

California State Tax Controversy

California's Franchise Tax Board operates independently from the IRS and runs its own examination and protest process. An IRS audit that changes your federal liability typically triggers an automatic state conformity notice. Stock option exercises, ESPP transactions, and trust residency issues are common triggers for FTB examination, often arising from a federal change that the FTB picks up automatically.

• FTB audit response and protest preparation
• Conformity issues arising from IRS adjustments
• California residency and sourcing disputes
• EDD payroll audit defense and worker classification disputes
• CDTFA sales and use tax audit representation

I got a CP2000 notice. What do I do first?

Do not ignore it and do not respond without reviewing the proposed changes against your original return and source documents. A CP2000 is a proposed adjustment, not a final bill. You have the right to agree, disagree, or partially disagree. The response deadline is generally 60 days from the notice date. An unanswered CP2000 converts to an assessment automatically. Silicon Valley Tax reviews the underlying basis discrepancy, prepares a substantiated response, and handles all IRS Automated Underreporter correspondence on your behalf.

How long does an IRS audit take?

Correspondence audits typically resolve in 3 to 6 months if you respond completely and promptly. Office audits run 3 to 12 months depending on the issues. Field audits with a revenue agent can run 12 to 36 months for complex returns. Appeals adds another 12 to 24 months on average. The statute of limitations on assessment is generally 3 years from the filing date, extended to 6 years if income is understated by more than 25 percent, and unlimited for fraud or non-filing.

Can Silicon Valley Tax represent me at IRS Appeals?

Yes. Al Nuñez holds both a CPA license and a JD, which qualifies him to practice before the IRS at all levels including the IRS Independent Office of Appeals. Representation at Appeals is distinct from examination representation and requires building a written protest that frames the issues around law and hazards of litigation. Al has handled Appeals conferences on unreported income, basis disputes, R&D credit positions, and penalty challenges. Many cases that close out of examination with a significant proposed deficiency settle at Appeals on acceptable terms.

What is the difference between an examination and an audit?

They are the same thing. The IRS uses the word "examination" in official communications because it sounds less adversarial. The result if unresolved is the same: an assessment of additional tax, interest, and penalties. The format varies: correspondence audits are conducted by mail; office audits are held at an IRS Service Center; field audits involve a revenue agent visiting your business or meeting with your representative.

What is a 90-day letter and what happens if I miss the deadline?

A 90-day letter is a Statutory Notice of Deficiency. It is the IRS's formal notice that it intends to assess additional tax. You have 90 days from the date on the letter (150 days if you are outside the United States) to file a petition with the United States Tax Court. If you miss the deadline, the IRS assesses the tax and your only remaining path is to pay the liability and then sue for refund in federal district court or the Court of Federal Claims. The 90-day deadline is a hard jurisdictional cutoff and cannot be extended.

Can penalties be removed after the IRS assesses them?

Yes. The two most common paths are First-Time Abatement and reasonable cause. First-Time Abatement is available to taxpayers with a clean compliance history in the prior three years for failure-to-file, failure-to-pay, and failure-to-deposit penalties. It does not require any showing of hardship or cause and can be requested by phone or in writing. Reasonable cause requires a documented narrative that the taxpayer exercised ordinary business care but was still unable to comply. SVT prepares abatement requests in writing and follows up through the IRS Penalty Appeals Program if the initial request is denied.

My current CPA prepared the return under audit. Should I use a different firm for representation?

Often yes, and for two reasons. First, your current CPA may have a conflict of interest if the IRS is challenging a position they took on the return. Second, controversy representation requires a different skill set than return preparation. A CPA who is excellent at compliance may not have experience managing examinations, writing Appeals protests, or evaluating whether to petition Tax Court. SVT can take the controversy engagement and coordinate with your existing preparer for factual questions about the return without displacing them for future compliance work.