The IRS and Your Home

Do I have to let the IRS into my home?

Unless the IRS has a court order to enter your home, which is pretty rare, it is illegal for them to enter your house without an express invitation from you. During a field audit, the auditor will request to enter your house to discuss your audit or to verify deductions such as a home office. You can forbid them to enter, but it is more likely than not any home-related deductions you claim will be disallowed. If you don’t want the auditor in your home, seek professional representation and have the meeting held at your attorney’s office.

Can the IRS take my house?

The short answer is yes.

Unfortunately for taxpayers, the IRS is authorized by the Internal Revenue Code to seize a house or a business. The IRS has access to almost anything you own in order to collect back taxes, including your home. While the IRS can go right on ahead and take money from your bank account or wages, there is a process the agency must go through before acquiring your home.

The procedure of seizing your home depends on the size of the case. If you owe less than $5,000 in back taxes to the IRS, it is illegal for them to take your home. Before they even consider taking such a drastic step, the IRS must determine the equity of your home. If the equity of your home will not produce significant funds, they won’t even consider seizing it. Equity is determined by the quick sale value of your home which is a 20% reduction of the full market price. For example, if your house is worth $350,000 and the mortgage on it is $350,000, there is no equity in the house home and the IRS won’t seize it. On the other hand, say you were to owe $335,000 and the quick sale value was $370,000? The IRS is permitted to seize the house and use the remaining $35,000 to put towards your debt. The final hurdle the IRS must jump through in order to obtain your home is to get a court order from a U.S. District Court Judge or Magistrate. While the IRS can go directly into your bank account unchecked, they must get permission before taking your home. Once approved, the IRS will then padlock your house, post notices to the public, and sell any assets to the highest bidder.

It’s important to note that if you have already made a payment plan such as a pending Installment Agreement or an Offer in Compromise with the IRS, it is illegal for them to seize your residence.

If you owe money to the IRS, don’t expect them to immediately claim your home. Home seizure is a last resort for the IRS that usually results from uncooperative taxpayers. If you are being audited, owe money in back taxes, or are in fear of losing your home to the IRS, contact the Law Offices of Jef Henninger for professional assistance from lawyers who work aggressively to ensure the best possible outcome for our clients.



What are my rights during an audit?

Similar to a suspect in a criminal investigation, the taxpayer in an audit is guaranteed certain rights. Publication 1, Your Rights as a Taxpayer, is an IRS document containing the Taxpayer Bill of Rights and summaries of the various processes that occur during an audit.

The Taxpayer Bill of Rights is a collection of 10 assurances relating to the treatment of the taxpayer and the limitations of the IRS. Publication 1 specifically states these rights as followed:

  1. The Right to Be Informed

Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

  1. The Right to Quality Service

Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.

  1. The Right to Pay No More than the Correct Amount of Tax

Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

  1. The Right to Challenge the IRS’s Position and Be Heard

Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

  1. The Right to Appeal an IRS Decision in an Independent Forum

Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

  1. The Right to Finality

Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

  1. The Right to Privacy

Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.

  1. The Right to Confidentiality

Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

  1. The Right to Retain Representation

Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

  1. The Right to a Fair and Just Tax System

Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

In summary, the Taxpayer Bill of Rights basically guarantees that the taxpayer will be sufficiently informed about the actions and requests of the IRS and to be treated fairly by the IRS. This document is important in that is assures the taxpayer will be informed on why they are being audited and how the audit is going to affect them. It also assures that the IRS won’t overstep their bounds or take advantage of the taxpayer by granting rights to privacy and representation.

Unfortunately, IRS agents are well aware that most Americans have almost no understanding of the tax code nor do they know their rights during an audit. This leads to not only the IRS gaining more information than they’re entitled to but also the taxpayer unintentionally incriminating themselves, especially during office and field audits. Your rights are best protected with proper representation. Here at the Law Offices of Jef Henninger, Esq., we work to protect you from the IRS overreaching and to wrap up your audit as quickly as possible.

What to Expect when Interviewed by the IRS

Most Americans subject to audit are lucky enough to complete the process entirely through mail. Those who are not as fortunate must meet face-to-face with an IRS agent to discuss the issues of their tax return.

As if an audit itself isn’t scary enough, most people are even more anxious about the in-person interview. IRS agents are trained to scrutinize your financial history, to pick out any flaws with your tax return, and to get you to say something that may incriminate you further. This absolutely justifies taxpayers’ apprehensions.

The best way to ease the anxiety is to prepare for the appointment. It is crucial to prepare/review documents requested in the initial letter, get representation, and to understand what will happen during the interview.

The IRS will choose the location of the appointment, however they will contact you through phone or mail to determine a convenient date and time. You can request a change of location, however it may not be granted.

Where the appoint will take place depends on whether the audit is an office audit or a field audit. The meeting for an office audit takes place in the office of the local IRS branch. Field audits can take place at either your home, your attorney’s/accountant’s office, or your place of business.

Meetings not related to business may take place at your home but will almost definitely take place in your attorney’s/accountant’s office if you have one. The agent will typically discuss issues with itemized deductions, unreported income, or investments on your tax return. They will examine any substantiation you bring and will determine whether you owe money, are owed money, or there is no change to your return.

Meetings relating to business take place at your place of business where books and records are held. The IRS agent is required to take a tour of and review your business facilities. They will want to examine how you operate your business and look at any major equipment you own. The agent will also question you on wheather transactions are made by cash, check, or credit card.

For both business and nonbusiness audit meetings, the agent will begin by previewing your rights and by summarizing what parts of your return/finances are being examined. The agent will then proceed with specific questions.

It is vital to note that if you have representation, you are not required to attend this meeting and it is better if you don’t. By filling out IRS Form 2848, you grant power of attorney to your representative, allowing them to attend the meeting and negotiate with the IRS. This is highly recommended in that it allows an experienced professional knowledgeable in tax law to take control of your audit. This removes not only the possibility of incriminating yourself during the meeting but also removes the anxiety of meeting with the IRS.

If you choose not to proceed with representation, the face-to-face interview will be challenging.

During the interview the IRS examiner may pursue information, such as financial and employment history, in an attempt to find issues outside the specifics of the audit. IRS agents are trained to scrutinize every word you say and every substantiation you claim. Depending on how you respond, you could potentially expand the scope of the audit to issues and tax returns from other years. This can result in what should have been avoidable fines or even criminal charges for the taxpayer. The agent will take advantage of the taxpayer’s lack of knowledge and will attempt to probe damaging information out of them. Any information you give to the agent can be used against you, no matter how innocent it may seem. This can result in substantial penalties and even a criminal investigation regardless of intent.

It is highly recommended that you do not proceed into an audit alone. The Law Offices of Jef Henninger, Esq. are here to negotiate with the IRS and produce the best outcome for our clients.

Types of Audits: What should I expect during an audit?

Nobody wants to go through an audit, but everyone wants to know what to expect. What many people are unaware of, though, is that there are different ways the IRS will audit you. Your expectations will be dependent on the type of audit. Each type of audit has varying means of correspondence between the taxpayer and IRS, has different levels of participation for the taxpayer, and requires different documents from the taxpayer. To figure out what you should expect during an audit, you must first determine what type of audit you’re experiencing.

All audits begin with a letter that states what parts of your tax return are in question. It additionally specifies when, where, and how you are to respond to the IRS. The taxpayer will also receive an Information Document Request (IDR) that specifies which documents must be gathered by the taxpayer.

Correspondence Audits:

Correspondence audits are the most common type of audit, making up approximately 70% of all audits, and are done entirely through mail. These audits are fairly simple and do not require in-person meetings or extensive investigation. Correspondence audits are primarily for verification issues on a tax return such as justifying income or deductions.

The IRS uses computer systems to examine your tax return and to detect mathematical errors, missing documents, or inconsistencies. The IRS compares the information on your return to information already on record provided by third parties such as banks and employers. Items typically requested by the IRS for verification purposes usually include W-2’s, 1099 income items, itemized deductions, and Schedule C receipts.

If the information from the return conflicts with what is on record or the return is missing significant documents, then the taxpayer will be sent a Letter 566 or a CP 2000.

Letter 566 informs the taxpayer that their return has been selected for audit and will list required documents to be sent back to the IRS. This letter is mostly sent out to substantiate specific claims on a tax return such as itemized deductions as opposed to a broad examination.

A CP 2000 is not a bill, but it can result in an increase, decrease, or no change in your taxes. The CP 2000 is a notification of the mismatched information and a request for additional information. Taxpayers are given 30 days from the date of the CP 2000 (not the day you received it) to respond to the IRS or they will face added penalties.

Although the correspondence audit is the most simplistic type of audit, it is not unusual for a taxpayer to consult an attorney for assistance. The IRS tends to request more than they’re entitled to, so proper representation will be helpful in protecting the taxpayer.

Office Audits:

Not nearly as common as correspondence audits, office audits are more comprehensive looks at an individual’s financial history. These are conducted through interviews with an auditor in person at the local IRS office.

A letter is sent to the taxpayer that lists specific items on their tax return that are in question. The IRS requests that you bring in substantiation or any documents that can justify the questionable items in to the IRS office.

Office audits are far more troublesome for the taxpayer in that during the interview the IRS examiner may pursue information, such as financial and employment history, in an attempt to find issues outside the specifics of the audit. IRS agents are trained to scrutinize every word you say and every substantiation you claim. Depending on how you respond, you could potentially expand the scope of the audit to issues and tax returns from other years. This can result in what should have been avoidable fines or even criminal charges for the taxpayer.

It is highly recommended to bring an experienced tax attorney to the interview. Proper representation can protect the taxpayer from the IRS overstepping their bounds and can prevent further investigation.

Field Audits:

Field audits are the most thorough investigations conducted by the IRS with the purpose of uncovering major violations. These audits are done by highly trained revenue agents who review the entirety of an individual’s or firm’s financial/tax history. It is the agent’s goal to uncover issues with the taxpayer’s reported income and deductions.

They’re called field audits because the revenue agent will interview the taxpayer in their own home or place of business. Most businesses are audited this way so the agent can review all records related to the return and to interview the owners. If you hire professional representation, however, the first meeting will more than likely take place in your attorney’s office.

The agent will examine a tax return to discover any flaws or inconsistencies such as unreported income or improper deductions. After examining one year’s return, the agent can open other years’ tax returns if issues are found. The agent is not limited to tax returns but may also examine records such as credit databases and property records.

The investigation will go as far where the agent will examine the taxpayer’s general expenditures. If the agent finds that the expenditures surpass the reported income, the agent will assume there is unreported income and the burden lies with the taxpayer to prove otherwise.

It is crucial to contact an attorney or accountant as soon as a field audit has begun. Similar to the office audit, the agent will take advantage of the taxpayer’s lack of knowledge and will attempt to probe damaging information out of them. Any information you give to the agent can be used against you, no matter how innocent it may seem. This can result in substantial penalties and even a criminal investigation regardless of intent. By using IRS Form 2848, you authorize power of attorney which grants an experiences representative the power to settle tax matters on your part. Here at the Law Offices of Jef Henninger, Esq., we have the means and experience to shield you from the potential dangers of a field audit.