IRS Audit Defense

You received an IRS audit notice. What you do next determines whether this is a minor inconvenience or a financial disaster.

North Star Law represents individuals and businesses through every stage of the IRS examination process , from the initial notice through administrative appeals and, when necessary, Tax Court litigation.

How It Works: Four Steps to Resolution

Step 1: Free Consultation

You bring us your audit notice. We review the notice, identify what the IRS is examining and why, assess the scope and risk level of the examination, and give you a clear explanation of your options. No charge. No obligation.

Step 2: Flat-Fee Engagement

If you decide to move forward, we quote a flat fee for the entire engagement before any work begins. You sign an engagement letter, we file Form 2848 (Power of Attorney) with the IRS, and from that point forward, the IRS communicates with us, not with you.

Step 3: Representation

We handle everything: document requests, examiner communications, office and field audit appearances, and all substantive responses. We control the flow of information, respond precisely to what is asked, and protect your rights throughout the process. In most cases, you never speak to the IRS at all.

Step 4: Resolution

The audit ends in one of three ways: the IRS agrees with your return (no change), you and the IRS reach an agreement on adjustments, or we elevate the case to IRS Appeals or Tax Court. We see the case through to final resolution regardless of which path it takes.

Flat Fees. No Hourly Billing. Payment Plans Available.

We quote a fixed fee for your audit representation before we start. You will never get a bill for a phone call, an email, or a question you ask during the engagement. If your case changes in scope, we will let you know before any additional costs are incurred. We also offer payment plans so you can get representation now, not when you’ve saved enough to afford it. The only upfront cost is the filing fee and the initial engagement payment; the balance is spread over the life of the case.

Call (832) 384-4526 for a free consultation and a flat-fee quote for your audit.

Why You Need Representation During an IRS Audit

Most taxpayers make the same mistake when they receive an audit notice: they try to handle it themselves. They gather their records, show up at the IRS office or respond to the correspondence, and answer every question the examiner asks. They assume that because they filed an honest return, the audit will work itself out.

It usually doesn’t. IRS examiners are trained to find adjustments. They will ask questions designed to uncover issues you didn’t know existed. They will request documents that lead to follow-up questions about unrelated areas of your return. A routine examination of your business deductions can expand into a review of your personal spending, your bank deposits, and your unreported income , not because you did anything wrong, but because the examiner followed a trail that your answers created.

Under IRC Section 7521(c), you have the absolute right to have a representative handle your audit. When you hire North Star Law, we communicate directly with the IRS examiner on your behalf. In most cases, you never have to speak to the IRS at all. This is not about hiding from the examiner. It is about controlling the flow of information, responding precisely to what is asked without volunteering information that opens new lines of inquiry, and ensuring that your legal rights are protected throughout the process.

As both a licensed attorney and a CPA, Phillip Zagotti brings a combination of skills to audit defense that most practitioners cannot offer. The accounting expertise means we understand the technical tax issues at the level the examiner does , we can engage on complex questions about cost basis, depreciation methods, revenue recognition, and expense classification without needing to bring in a separate accountant. The legal training means we know when to push back, when to invoke your rights, and when to elevate the case to Appeals or Tax Court rather than accepting an unfavorable result at the examination level.

Common Audit Triggers: Why the IRS Selected Your Return

The IRS doesn’t audit returns at random. Every return is scored by the IRS’s Discriminant Index Function (DIF) system, which compares your return against statistical norms for taxpayers in similar situations. If your return scores outside those norms, it gets flagged for human review. An experienced examiner then decides whether to open an audit. By the time you receive a notice, your return has already been through multiple layers of screening.

While the specific DIF scoring formula is classified, the IRS’s own data and practitioner experience have identified the most common triggers:

• Income over $200,000. Higher-income returns are audited at significantly higher rates than average filers. The audit rate increases further above $400,000 and again above $1 million.

• Self-employment income (Schedule C). The IRS knows that self-employed taxpayers have more opportunities to underreport income and overstate deductions. Schedule C filers are audited at rates well above the national average, particularly when deductions are high relative to income.

• Cash-intensive businesses. Restaurants, retail stores, construction companies, medical practices with cash-paying patients, and service businesses that handle significant cash volumes face heightened scrutiny. The IRS uses credit card transaction ratios to estimate expected cash receipts.

• Large charitable deductions. Charitable contributions that are disproportionate to reported income draw attention, particularly for non-cash donations of property, art, or closely held business interests that require appraisals.

• Rental property losses. Claiming rental losses, especially when used to offset other income under the real estate professional exception, is a well-known audit trigger.

• Home office deductions. The IRS scrutinizes home office claims because the requirements for exclusive and regular business use are frequently not met.

• Cryptocurrency transactions. The IRS has made digital asset enforcement a priority. Failure to report crypto gains, inconsistent cost basis reporting, and unreported staking or DeFi income are all under active scrutiny.

• Unreported 1099 income. The IRS receives copies of every 1099 issued. If the income reported on your return doesn’t match the 1099s in the IRS’s system, an automated notice or audit is almost certain.

• Foreign accounts and assets. FBAR filing obligations, FATCA reporting, and international information returns (Forms 5471, 3520, 8938) are all enforcement priorities. Non-compliance can trigger both civil audits and criminal referrals.

Understanding why your return was selected helps us prepare a more targeted defense. When you bring us your audit notice, we identify the specific items the IRS is examining and build our response strategy around the issues that matter.

Types of IRS Audits We Handle

Not all IRS audits are the same. The type of audit determines the scope, the process, and the risk.

Correspondence Audits

Conducted entirely by mail. The IRS sends a notice identifying specific items on your return, typically a deduction, a credit, or a reported income amount, and asks you to provide documentation supporting those items. These are the most common types of audit and are usually limited in scope. But they still require careful responses. Providing insufficient documentation results in disallowance. Providing too much can trigger questions about items the IRS wasn’t originally examining. We prepare targeted responses that address exactly what the examiner asked for, document the legal and factual basis for your position, and create a record that protects you if the case escalates.

Office Audits

Require you, or your representative, to appear at an IRS office with your records. The examiner has broader authority to ask questions and review documents beyond the specific items identified in the initial notice. Office audits are common for individual returns with questions about itemized deductions, rental income, self-employment income, or education credits. We attend these examinations on your behalf, present your records in an organized, professionally prepared format, and manage interactions with the examiner to keep the audit focused on the issues identified in the notice.

Field Audits

The most comprehensive and the most serious. A revenue agent comes to your home or place of business to review your records on-site. Field audits are typically reserved for business returns, high-income individuals, and returns with complex issues. The revenue agent has broad authority to examine your books, interview you and your employees, inspect your business operations, and request documents covering multiple years. Field audits can last months. They require careful preparation, a strategic response plan, and experienced representation from the first day. We handle every aspect of field audit defense, from the initial document request through the closing conference.

Eggshell Audits

This is the category that most taxpayers and many tax professionals don’t recognize until it’s too late. An eggshell audit is a civil examination where the taxpayer knows, or should know, that the return contains errors that could give rise to fraud penalties or a criminal referral. The name comes from the fact that the taxpayer is walking on eggshells, trying to resolve the audit without triggering a referral to IRS Criminal Investigation.

An eggshell audit requires an attorney. Not a CPA. Not an enrolled agent. Not the person who prepared your return.

Communications with an attorney are protected by the attorney-client privilege. Communications with a non-attorney tax professional generally are not. If the examiner suspects fraud and refers the case to Criminal Investigation, everything you told your CPA or enrolled agent can be compelled through testimony or subpoena. Everything you told your attorney is privileged.

If you believe your return contains material errors, or if the IRS examiner is asking questions that suggest they are looking at potential fraud, you need an attorney immediately. Do not answer any more questions until you have legal counsel.

What Happens After the Audit

If the examiner proposes changes to your return, you are not required to accept them. The IRS will issue a preliminary report showing the proposed adjustments, including additional tax, penalties, and interest. You have 30 days to respond.

If you agree with the changes, you sign the report, and the case is closed. If you disagree, you have the right to request a conference with the examiner’s manager, or you can file a formal protest and take the case to the IRS Office of Appeals.

IRS Appeals

IRS Appeals is an independent function within the IRS, separate from the examination division. Appeals officers are authorized to settle cases based on the hazards of litigation, meaning they evaluate the likelihood that the IRS would prevail if the case went to Tax Court and settle accordingly. Many cases that produce unfavorable results at the examination level achieve significantly better outcomes at Appeals. We prepare formal written protests that identify the legal and factual basis for our position, present the case to the Appeals officer, and negotiate resolutions that reflect the realistic strengths and weaknesses of the IRS’s position.

Tax Court

If Appeals cannot resolve the case, the IRS will issue a statutory notice of deficiency, commonly called a 90-day letter. This notice gives you 90 days to file a petition in the United States Tax Court. If you do not file within 90 days, the proposed assessment becomes final, and the IRS can begin collection. Tax Court is a prepayment forum; you do not have to pay the disputed tax before challenging it. North Star Law is admitted to the U.S. Tax Court and represents clients in Tax Court proceedings.

Penalties in Audits: What’s at Stake Beyond the Tax

IRS audits do not just result in additional tax. They frequently result in penalties that can dramatically increase the total amount owed.

The accuracy-related penalty under IRC Section 6662 is the most common audit penalty. It imposes a 20 percent penalty on any underpayment attributable to negligence, disregard of rules or regulations, or a substantial understatement of income tax. A substantial understatement exists when the understatement exceeds the greater of 10 percent of the correct tax or $5,000. For many audit adjustments, this threshold is easily met.

The civil fraud penalty under IRC Section 6663 is far more severe: 75 percent of the underpayment attributable to fraud. The IRS must prove fraud by clear and convincing evidence, but if they meet that burden, the penalty applies to the entire underpayment for that year unless the taxpayer can show which portion is not attributable to fraud.

Penalty defense is a critical part of audit representation. Even when the underlying tax adjustment is correct, penalties can often be avoided or reduced. The reasonable cause defense under IRC Section 6664(c) provides relief from accuracy-related penalties if the taxpayer acted in good faith and there was reasonable cause for the underpayment. Reliance on a qualified tax professional, complexity of the law, and the taxpayer’s efforts to comply are all factors the IRS considers. We build the reasonable cause defense into our audit strategy from the beginning, documenting the facts that support penalty relief before the examiner even raises the issue.

What to Do When You Receive an Audit Notice

First, don’t panic, but don’t ignore it.

IRS audit notices have deadlines. Missing a deadline can result in a default assessment , the IRS accepts its own proposed changes and assesses the additional tax without your input.

Second, do not call the IRS.

Do not try to explain your situation over the phone. Do not send documents without understanding exactly what the examiner is looking for and why. Anything you say or provide can and will be used in the examination.

Third, call an attorney.

Not your bookkeeper, not your return preparer, not your brother-in-law who used to work at H&R Block. An attorney who handles IRS audits and understands both the tax law and the examination process. If there is any possibility that your return contains errors that could be characterized as fraud, the attorney-client privilege is the only protection you have.

Why North Star Law for Audit Defense

When you hire North Star Law for IRS audit defense, you get an attorney who is also a CPA with over 20 years of experience in tax practice. That dual credential means we understand the accounting issues the examiner is focused on and the legal rights that protect you during the process. We don’t hand your file to a paralegal or a junior associate. Phillip Zagotti handles your case personally, from the initial review of your audit notice through the final resolution.

We represent clients in audits before the IRS, the Texas Comptroller, and other state taxing authorities. We are admitted to the United States Tax Court, the U.S. District Court and Bankruptcy Court for the Southern District of Texas, and multiple federal courts. If your audit needs to go beyond the examination room, we have the credentials and the experience to take it there.

Flat fees. No hourly billing. Payment plans available.

Call (832) 384-4526 or schedule a free consultation.