Hire an Experienced Texas Civil Tax Attorney for Your State or Federal Tax Audit
Facing a civil tax audit is a serious matter. Not only can these audits lead to substantial liability for taxes, interest, and penalties, but, in some cases, they can also present risks for criminal charges. If state auditors or federal revenue agents find evidence of intentional tax evasion or tax fraud, they can—and will—refer the matter to the Attorney General’s Office or U.S. Department of Justice (DOJ) for prosecution. As a result, when facing an audit, it is important to have an experienced Texas civil tax attorney on your side.
Our attorneys represent individuals and businesses in civil tax audits conducted by the Texas Comptroller’s Office and the Internal Revenue Service (IRS). Both types of audits present similar risks, and, as a result, they both require a similarly strategic and comprehensive approach. Each Texas civil tax attorney at Brown Tax, P.C. has extensive experience handling audits at the state and federal levels, and our attorneys rely on this experience to efficiently pursue favorable resolutions for our clients.
Texas Comptroller’s Office Civil Tax Audits
The Texas Comptroller’s Office audits individual and business taxpayers suspected of underpaying their state tax liability. While Texas does not have a state income tax, individuals and businesses may still owe various other taxes under state law. The Comptroller’s Office enforces individuals’ and businesses’ tax liability, and one of its primary enforcement tools is the civil tax audit.
Most Texas civil tax audits examine four years’ worth of financial records and returns. But, as the Comptroller’s Office notes, audits may examine more than four years’ worth of records and returns “if a business was not permitted but should have been or if fraud has been detected.” In any case, dealing with a state civil tax audit in Texas can be a complicated and time-consuming process, and, to avoid unnecessary liability, targeted taxpayers must play an active role in the audit process.
The Comptroller’s Office selects taxpayers to audit in various ways. When facing a civil tax audit, understanding why you or your business has been selected is important for building an informed defense strategy. Some of the potential triggers for Texas civil tax audits include:
- Being designated as a “Priority One Account” as one of the state’s largest taxpayers
- Having undergone a previous audit that uncovered $25,000 or more in tax liability
- Referrals from other government agencies or from the public
- Analysis of taxpayers’ tax returns and payments
- Computer-based random selection
Regardless of why the Texas Comptroller’s Office initiates a civil tax audit, the audit will follow a nine-step process. For individuals and businesses that are facing scrutiny, engaging a Texas civil tax attorney as early in the process as possible can be critical for mitigating the risks involved. The nine steps in the Comptroller’s Office’s audit process are:
- Notice of the Audit
- Pre-Audit Research and Review
- Taxpayer Contact
- Entrance Conference with the Taxpayer
- Examination of the Taxpayer’s Records
- Exit Conference with the Taxpayer
- Reconciliation Conference with the Taxpayer (if the audit uncovers a disparity between the amount paid and the amount owed)
- Independent Audit Review (IAR) Conference
- Issuance of the Comptroller’s Office’s Written Findings
If a taxpayer disagrees with the Comptroller’s Office’s written findings, the taxpayer can engage counsel to request a review and redetermination. If this proves successful, the Comptroller’s Office will issue an amendment revising the taxpayer’s liability. Should the review and determination process prove unsuccessful, the taxpayer can continue to seek relief in the Texas courts.
IRS Civil Tax Audits
The IRS routinely conducts civil tax audits targeting both individual and business taxpayers. An IRS audit can examine all forms of tax liability, including liability for income taxes, employment taxes, and estate and gift taxes—among others. Most IRS audits examine three years’ worth of returns, though the agency can review six years’ worth of returns (or more) in some cases.
Similar to audits conducted by the Texas Comptroller’s Office, IRS audits require a prompt and strategic response. When facing IRS audits, targeted taxpayers must work closely with their counsel to:
- Identify and collect all relevant financial records and tax filings
- Independently assess their tax liability
- Interface with the IRS throughout the audit process
- Affirmatively demonstrate compliance with the Internal Revenue Code (or present defenses to liability, if necessary)
- Work to favorably resolve the audit without undue liability for taxes, interest, and penalties
Similar to Texas civil tax audits, taxpayers who dispute the outcome of an IRS audit can—and should—challenge the IRS’ determination through the appeals process. This generally starts with going to the IRS Independent Office of Appeals, and individual and business taxpayers can seek relief in the federal courts if necessary.
Preventing a Civil Tax Audit from Becoming a Criminal Investigation
As noted above, one of the most significant risks involved in facing a civil tax audit is the risk of the inquiry becoming criminal in nature. When conducting civil tax audits, the Texas Comptroller’s Office and the IRS both look for various red flags for potential criminal activity. These include issues such as:
- Understating the taxpayer’s sales revenue or income
- Maintaining inadequate or inconsistent financial records
- Concealing sales revenue, income, or assets
- Filing false returns
- Refusing to cooperate during the audit process
Crucially, however, none of these issues are inherently indicative of criminal misconduct, and they can all have a variety of benign explanations. For example, while cooperating during an audit can be in taxpayers’ best interests in some cases, it can also be risky. When we represent clients during civil tax audits, we carefully assess all of the relevant facts and circumstances, and we formulate defense strategies focused on protecting our clients as fully and cost-effectively as possible.
Schedule a Confidential Consultation with a Texas Civil Tax Attorney
If you need a Texas civil tax attorney for a Texas Comptroller’s Office audit or IRS audit, we encourage you to contact us promptly for more information. Call 888-870-0025 or send us a message online to schedule a confidential consultation today.