A business owner whose deductions are being questioned and a retiree whose distributions do not match IRS records face different audits, yet both follow the same legal road: examination, then IRS Appeals, then the U.S. Tax Court. A tax attorney in Danville, CA can represent you at each stage and protect the deadlines that keep later options open.
Two kinds of Danville taxpayers who face audits
Danville is home to many business owners and retirees, and audits of those two groups tend to center on different, fairly predictable themes.
Business owners
For owners of S corporations, partnerships and sole proprietorships, examiners often focus on:
- Whether shareholder-employees of an S corporation pay themselves reasonable wages instead of taking only distributions.
- Mixed personal and business use of vehicles, homes, travel and meals.
- Whether all deposits into business and personal accounts were reported as income.
- Loans between the owner and the company that look more like income or distributions.
Our article on what triggers an IRS audit for a small business looks at these in more depth.
Retirees
Retirement brings income that third parties report directly to the IRS, which makes mismatches easy to spot. Common issues include IRA and 401(k) distributions reported on Form 1099-R, the taxable share of Social Security benefits, required minimum distributions that were missed or late, and the sale of a long-time home where the exclusion or cost basis was calculated incorrectly. Inherited property raises similar basis questions.
If an audit letter has already arrived, call (415) 754-0115 to schedule a free consultation, or reach us through our contact page with the letter's date and the tax year involved.
What examiners ask to see
Whether the exam is by mail, at an IRS office or in the field, the requests usually fall into familiar categories: bank and brokerage statements, receipts and invoices, mileage logs, closing statements for property sales, records of cost basis, and payroll filings for businesses. For field exams, a revenue agent may want to understand how the business records income from start to finish. Our guide to the IRS field audit explains your rights when an agent visits.
Records reviewed ahead of time can be presented in an organized way, and gaps can be explained or reconstructed before the examiner draws conclusions from them.
IRS Appeals: a second look before court
When an exam ends with proposed changes you disagree with, the IRS usually sends a 30-day letter with the examiner's report. A written protest within that window moves the case to the IRS Independent Office of Appeals, which operates separately from the examination function.
Appeals officers can weigh the hazards of litigation, meaning the realistic risk each side faces if the case went to court. That makes Appeals a place where partial agreements are common, such as accepting one adjustment while contesting another. Preparing a protest that addresses both the facts and the law tends to make that conversation more productive.
Tax Court petitions: what a tax attorney in Danville, CA weighs
If Appeals does not resolve the case, or if the protest window passes, the IRS issues a Notice of Deficiency. That letter is the key to the U.S. Tax Court. Our article on the Tax Court petition after a Notice of Deficiency covers the mechanics.
The deadline
The petition is generally due within 90 days of the notice date, or 150 days if the notice is addressed to someone outside the United States. The last day is printed on the notice and should be treated as firm.
Regular case or small tax case
Smaller disputes may qualify for the small tax case procedure, which is less formal. The trade-off is that a small tax case decision cannot be appealed. Larger or more complex cases proceed as regular cases, with the right to appeal to a federal court of appeals.
What filing a petition does
A timely petition generally prevents the IRS from assessing the disputed tax while the case is pending, so you can contest it without paying first. Many docketed cases are referred to IRS Appeals for settlement discussions before any trial, which gives a second chance at resolution even if the first Appeals conference did not succeed.
Where cases are heard
Tax Court judges travel to hold trial sessions in cities around the country, including San Francisco, so a Danville taxpayer does not need to travel to Washington, D.C. for trial.
California's role after a federal audit
A final federal change usually must be reported to the California Franchise Tax Board within six months, and the FTB may issue its own Notice of Proposed Assessment based on the federal result. The Somal Law Firm, based in nearby Pleasanton, represents individuals and small businesses in IRS audits, appeals and disputes. Our practice areas page outlines that work, and our overview of a tax attorney in Contra Costa County explains how a federal change can carry over to the state.
Frequently asked questions
Can I go to Tax Court without going through Appeals first?
Yes. Appeals is optional before a Notice of Deficiency is issued. However, Appeals often resolves cases without litigation, and docketed cases are frequently sent there anyway.
Do retirees face more audits than other taxpayers?
There is no rule that targets retirees. Retirement income is heavily reported by third parties, though, so mismatches between those reports and the return are noticed quickly.
What if I disagree with only part of the examiner's report?
You can generally agree to some adjustments and contest others. A protest or petition can be limited to the items you dispute.
Does a Tax Court petition stop all IRS collection?
It generally stops assessment and collection of the deficiency being contested. Balances that were already assessed for other years can still be collected, and interest continues to accrue on any amount that is ultimately owed, so a pending case is not a pause on everything.
If you are a Danville business owner or retiree facing an IRS audit, an appeal or a Notice of Deficiency, call (415) 754-0115 to schedule your free consultation, or use our contact page. Have the latest IRS letter and the return for that year available, and an attorney can review your situation and the deadline that applies.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.