124 answers from our advisors.

Read it for the notice number (shown at the top or bottom right), the tax year and the response deadline. Do not ignore it and do not call the IRS before you understand what it is asking. Send us a copy; many notices can be resolved in writing without an audit.

Not exactly. A CP2000 is an automated underreporter notice that says income reported to the IRS (for example on a 1099 or W-2) does not match your return. You have about 30 days to agree, partly agree or disagree with documentation, and a well-supported response often reduces or removes the proposed tax.

Correspondence audits are handled by mail and usually cover one or two items. Office audits take place at an IRS office, and field audits are conducted at your home or business by a revenue agent and usually cover a whole return. The type affects how we prepare and who attends.

Usually not. With a signed Form 2848 (power of attorney), a CPA can represent you, attend meetings, receive notices and speak with the agent on your behalf. In most audits the taxpayer never needs to meet the examiner.

Generally three years from the date the return was filed. The period is six years if income was understated by more than 25%, and there is no time limit for fraud or for years when no return was filed.

Often it is in your interest, because refusing can lead the agent to issue a notice of deficiency based on incomplete information. But the extension can sometimes be limited to specific issues or a specific date. Talk to us before you sign.

It is the IRS's formal determination that you owe more tax. You have 90 days (150 if the notice is addressed to you outside the US) to file a petition with the U.S. Tax Court. If you miss that deadline, the IRS can assess the tax and you lose the right to go to Tax Court without paying first.

Yes. After a 30-day letter you can request a conference with the IRS Independent Office of Appeals, which is separate from the examination function and considers the hazards of litigation. Many cases settle at Appeals for less than the agent proposed.

An offer in compromise lets you settle a tax debt for less than the full amount when you cannot reasonably pay it in full, based on your income, expenses and asset equity. It is filed on Form 656 with detailed financial statements, and the IRS accepts offers only when the numbers support them.

Yes. First-time abatement can remove failure-to-file and failure-to-pay penalties if you had no penalties in the prior three years and are otherwise compliant. Reasonable-cause relief is available for illness, disasters, reliance on professional advice and similar circumstances.

Yes. Individuals who owe $50,000 or less in combined tax, penalties and interest can usually get a streamlined installment agreement of up to 72 months without detailed financial statements. Larger balances require financial disclosure and negotiation.

Generally 10 years from the date the tax is assessed, known as the collection statute expiration date. Certain events, such as an offer in compromise, bankruptcy or a collection due process hearing, pause that clock.

When a business does not pay over payroll taxes withheld from employees, the IRS can assess a penalty equal to 100% of the unpaid trust fund taxes against the people responsible for paying them, such as owners and officers. You have 60 days to appeal the proposed assessment (Letter 1153).

A final notice (such as Letter 1058 or LT11) gives you 30 days to request a Collection Due Process hearing. That hearing stops most levy action while it is pending and lets you propose an installment agreement, offer in compromise or other alternative.

If you filed jointly, both spouses are generally liable for the full tax. Innocent spouse, separation of liability and equitable relief (Form 8857) can protect a spouse who did not know about the understatement or should not fairly be held liable.

Start filing before the IRS contacts you. In most cases the IRS expects the last six years of returns to be filed. Coming forward voluntarily usually limits penalties and avoids the IRS preparing substitute returns that overstate what you owe.

Yes. We handle state income tax, sales and use tax, payroll tax and residency audits, including Virginia, Maryland, DC and New York. State audits often follow federal changes, so we coordinate both.

New York reviews people who claim to have moved away or who spend time in the state. You can be taxed as a statutory resident if you keep a permanent place of abode there and spend more than 183 days in New York. Records of where you were each day are central to the defense.

Yes. Taxpayers may represent themselves, and the small tax case (S case) procedure is available for disputes of $50,000 or less per year. We work with you and, when needed, with outside tax counsel on Tax Court matters.

It depends on the type of audit, the number of years and issues, and the condition of your records. After reviewing the notice we give you a written scope and fee before work begins.

An audit gives reasonable assurance that financial statements are fairly presented and includes testing and confirmations. A review gives limited assurance based mainly on inquiry and analytics. A compilation presents your numbers in proper form with no assurance.

Lenders, sureties, investors, buyers, franchisors, government agencies and some contracts require audited financial statements. An audit also strengthens controls and gives owners confidence in their numbers.

The Public Company Accounting Oversight Board registers firms that audit public companies and broker-dealers. Registration means our firm is subject to PCAOB oversight in addition to AICPA peer review.

For a well-prepared mid-size company, fieldwork often takes one to three weeks and the full process six to ten weeks from planning to report. First-year audits and companies with weak records take longer.

A trial balance, bank statements and reconciliations, receivable and payable details, fixed asset and debt schedules, significant contracts, payroll records and support for selected transactions. We provide a prepared-by-client (PBC) list at the start.

Generally yes if the plan had 100 or more participants with account balances at the beginning of the plan year. Under the 80-120 rule, a plan with 80 to 120 participants may keep filing as it did the year before.

The audit report is filed with Form 5500, due the last day of the seventh month after the plan year ends (July 31 for calendar-year plans). Form 5558 extends the deadline by two and a half months.

It is the current name for what used to be called a limited-scope audit. When a qualified bank or insurer certifies the investment information, the auditor does not audit those investments, which reduces cost while still testing contributions, distributions and participant data.

An unmodified (clean) opinion says the statements are fairly presented. A qualified opinion has an exception, an adverse opinion says the statements are materially misstated, and a disclaimer means the auditor could not obtain enough evidence.

Management and the auditor must evaluate whether there is substantial doubt about the company's ability to continue for one year after the statements are issued. If so, the report includes an explanatory paragraph, which lenders and sureties read closely.

Most leases longer than 12 months must be recorded as a right-of-use asset and a lease liability. That can affect debt covenants, so it is worth reviewing the impact with your lender in advance.

It is the five-step model for recognizing revenue when control of goods or services transfers to the customer. Contractors, software companies and businesses with multi-element contracts are most affected.

An engagement in which we perform specific procedures that you and a third party agree on, such as testing royalty calculations or grant spending, and report the findings without giving an opinion. They are useful when a full audit is not required.

Yes, for private companies, subject to independence rules. Tax preparation and advice are generally permitted alongside an audit, but the auditor cannot make management decisions or keep your books in a way that impairs independence.

Start with what your lender, surety or investor requires. A review costs less and is often enough for smaller credit lines; an audit is usually required for larger loans, bonding capacity, sale processes and regulated industries.

Bonding companies set construction contractors' bonding limits based on working capital and equity in CPA-prepared statements. Audited statements with work-in-progress schedules usually support the highest capacity.

An audit is designed to detect material misstatement, including from fraud, but it is not a forensic investigation. If fraud is suspected, a separate forensic engagement with a targeted scope is the better tool.

A review of how transactions are authorized, recorded and checked, with recommendations to reduce errors and fraud risk. Auditors report significant deficiencies and material weaknesses to management and those charged with governance.

Fees depend on revenue, transaction volume, the number of locations and entities, inventory, the quality of records and reporting deadlines. We quote a fixed fee after a short planning discussion.

Yes. Most of our private company audits are of businesses using QuickBooks, Xero, NetSuite and similar systems. What matters is that the books are reconciled and supported.

SDOP lets US residents who failed to report foreign income or accounts, without willful intent, get compliant by filing three years of amended returns and six years of FBARs, paying the tax and interest, and paying a 5% miscellaneous offshore penalty instead of the much larger standard penalties.

Individuals whose failure to report was non-willful, meaning it resulted from negligence, inadvertence, mistake or a good-faith misunderstanding of the law. You sign a certification (Form 14654 for SDOP, Form 14653 for non-residents) explaining the facts, so the narrative must be accurate and well supported.

It is 5% of the highest year-end aggregate balance of the foreign financial assets that should have been reported, measured across the years covered by the filing. Accounts that were properly reported are not included in the base.

The Streamlined Foreign Offshore Procedures (SFOP) are available to individuals who meet the non-residency test, generally being outside the US for at least 330 days and having no US home in at least one of the last three years. There is no miscellaneous offshore penalty under SFOP.

No. If you are under civil examination or criminal investigation, the Streamlined procedures are not available, even for unrelated years. That is why it is important to come forward before the IRS reaches out.

Possibly not. If you reported and paid tax on all foreign income, are not under examination and have not been contacted by the IRS about the missing FBARs, the Delinquent FBAR Submission Procedures let you file the late FBARs with an explanation, and the IRS generally does not impose a penalty.

The Delinquent International Information Return Submission Procedures let you file late information returns with a reasonable-cause statement. Penalties can still be assessed, so the reasonable-cause statement and supporting facts are what protect you.

A quiet disclosure is simply filing amended returns or late FBARs without using a formal procedure or explaining the facts. The IRS can still assess full penalties, and it may treat a quiet disclosure as evidence of a deliberate attempt to avoid them.

The Streamlined procedures are not available. The IRS Criminal Investigation Voluntary Disclosure Practice (Form 14457) is the path for willful cases. It generally involves six years of filings, a 75% civil fraud penalty on the highest year and a willful FBAR penalty, but it is designed to resolve exposure without criminal prosecution.

After the Supreme Court's 2023 Bittner decision, the non-willful penalty applies per FBAR report, not per account, with a maximum of a little over $16,000 per year after inflation adjustments. Willful penalties can reach 50% of the account balance per violation.

Yes. US citizens and residents are taxed on worldwide income, so interest on NRE, NRO and fixed deposit accounts is taxable in the US even if India exempts it. Indian tax withheld can usually be claimed as a foreign tax credit on Form 1116.

Yes. Losses from a Ponzi scheme you entered to make a profit are generally deductible as a theft loss under section 165(c)(2). Unlike a capital loss, the deduction is ordinary, is not capped at $3,000 a year and is not subject to the limits on personal casualty losses.

Revenue Procedure 2009-20 lets qualifying investors deduct 95% of their qualified investment in the year the fraud is discovered if they are not pursuing third-party recovery, or 75% if they are, without having to prove the exact recovery amount. You elect it by attaching a required statement to the return.

In the year the theft is discovered, which under the safe harbor is generally the year the lead figure is charged by indictment, information or criminal complaint. If you have a reasonable prospect of recovering money, the portion you may recover is deferred until it becomes reasonably certain.

Start with the cash you invested, add the fictitious income you reported on prior returns, and subtract any withdrawals. Recoveries from receivers, insurance or SIPC reduce the loss. Good records of deposits, statements and prior returns are essential.

Possibly. In a 2025 Chief Counsel memorandum, the IRS concluded that victims of certain crypto investment scams, such as pig-butchering schemes, who transferred funds with a profit motive can claim a theft loss under section 165(c)(2). Each case depends on the facts, and reports to the FBI's IC3 and police help document the theft.

The excess can create a net operating loss that is generally carried forward to offset income in future years. Planning the timing of other income and deductions can help you use the loss efficiently.

Amounts you repay to a trustee or receiver generally increase your theft loss or are deductible in the year paid, depending on how the original withdrawals were treated. Keep the settlement documents for your return.

Not safely. The deduction is claimed on your own return, so you are responsible for it even though another company issued the K-1. The IRS treats syndicated conservation easements as listed transactions, requires disclosure on Form 8886, and has won many Tax Court cases disallowing these deductions entirely.

For contributions made after December 29, 2022, SECURE 2.0 disallows a partnership's conservation easement deduction if it exceeds 2.5 times the sum of the partners' relevant basis, with limited exceptions such as a three-year holding period or family partnerships. Deals promising a 4-to-1 or 5-to-1 write-off generally fail this test.

If the value claimed is 200% or more of the correct value, a 40% gross valuation misstatement penalty applies, and for charitable contributions there is no reasonable-cause defense. Failing to disclose a listed transaction adds a separate penalty.

Under the centralized partnership audit rules, the IRS deals with the partnership representative, and the result can be an imputed underpayment at the partnership level or adjustments pushed out to each partner. Either way the tax, penalties and interest ultimately fall on the investors, so watch the deadlines and ask for copies of IRS correspondence.

Have the transaction reviewed before the IRS contacts you. Depending on the facts and statute dates, filing a qualified amended return or settling under an IRS initiative can reduce penalties. You may also have claims against the promoters and appraisers.

Non-cash gifts over $500 require Form 8283. Gifts over $5,000 generally need a qualified appraisal by a qualified appraiser and a signed Section B, and for gifts over $500,000 the appraisal must be attached to the return. Missing paperwork alone can lead to the deduction being denied.