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"Fred's tremendous knowledge and commitment to service have greatly benefitted our company. He's corrected grave errors made by previous CPAs saving us tens of thousands of dollars. And he calmly navigated our way through a no change audit with the IRS. He has helped to transform us from a business that reacts to one that makes strategic decisions."

Tambi Harwood
Harwood Construction
Redwood City, CA

Tax Audit Protection Services

Do you want to bullet proof your business and financial transactions to provide security in case of a tax audit?

Have you received a tax audit notice?
We can help!

Our tax audit protection services include Tax Protection Advisory Services and Tax Audit Representation Services.

Many times there are different ways of interpreting transactions and relationships that have significance for tax purposes. If there is more than one way to interpret a transaction or relationship-that is, if the documentation leaves doubt about the nature of the transaction or relationship-the government will interpret it in a way which causes you to pay more taxes.

Our Tax Protection Advisory Services are designed to help you protect yourself from the government misinterpreting your transactions and relationships and causing you to pay more taxes.

For example, if you have a business, the Internal Revenue Code states that you can deduct any "ordinary and necessary business expense." In contrast, personal living expenses are not deductible unless there is a specific code section which allows the deduction. This may sound simple, but how do you determine whether or not an expense is a business expense? The answer lies in whether or not the expense was incurred in connection with a business activity. If the expense was incurred in connection with personal activities, then the item is a personal expense and not tax deductible unless the code specifically allows it. If the expense was incurred in connection with a business activity, then the item is probably tax deductible.

The key to determine whether there was a business activity depends upon whether the activity was operated so as to earn a profit. Note that I did not say that the activity must earn a profit; there only has to be a reasonable expectation of a profit. For many businesses this is easy to determine because there are formal business premises and operations. But what about the part time business run out of someone's home? This is still a business, if it is run in a way so that there is a reasonable expectation of a profit. In this instance, we need to help the Internal Revenue Service see that there is a real business activity by making sure that there is adequate documentation to show how the activity is operated. If you cannot show this to the Internal Revenue Service, they will not allow the deduction!!

Another example-I work with many corporations that are each owned by a handful of people. I call these closely held corporations. Many times the owners also have other relationships with the corporation besides being the owner. For instance, the owner can also be an employee; the owner can rent property to the corporation; and the owner can borrow or loan money to the corporation. In these cases it is often difficult to determine the nature of the relationships without documentation such as agreements between the owner and the corporation and resolutions in the corporate minutes. Many times you can save taxes by engaging in these different types of relationships between the owner of the closely held corporation and the corporation. It is important to properly document these transactions to make sure the government does not try to interpret them in a way to deny you legitimate tax benefits.

Failing to properly document these types of transactions is a mistake often made by small closely held corporations. They do not comply with formalities and thereby lose tax advantages and protections of the corporate form of doing business. If you leave a void which allows the government to come up with their own interpretation, they will-in a way that causes you to pay more taxes.

We can help! We can help you understand the tax rules and show you how to document these tax sensitive transactions and relationships so that you will successfully withstand a tax audit! We will help you bullet proof your business and financial affairs so that a tax auditor will have no alternative but to accept your interpretation.

Have you received a tax audit notice?
Are you confused about what you should do, what your rights are?
We can protect you from a tax audit!
We can put you on an equal footing with the tax auditors!

A tax audit is a relationship, a negotiation, between the taxpayer and the auditor. All of the dynamics of human relationships come into play. In addition, the relationship involves the highly technical subject of taxes. Having someone represent you removes some of the emotions involved when you represent yourself. We can create a bond with the tax auditor as one of equals. Also, if difficult issues come up that we want time to research or think about, we can ask for time to discuss the matter with you.

Many tax rules are complex and no one person can know them all. It is important to have a representative who knows when to answer questions and when to take a time out and formulate the best response. Sometimes the tax auditor does not know the rules. In this case we need to teach the tax rules to the auditor and show him how you have complied. If we have been successful in developing a good relationship with the tax auditor, the tax auditor will very likely hold our counsel in high regard. We may thus be able to resolve an issue at the audit level instead of having additional tax assessed and appealing to higher authority-at much more expense to you.

Tax auditors are just people and, as people frequently do, they tend to only look at the rules which are in their favor rather than look at rules which favor the taxpayer. We hold tax auditors to the rules even when they do not want to recognize them.

I remember a tax audit where it was obvious that the auditor did not know the rules. The auditor was only asking questions which would have shown that my client did not comply with the tax rules. The auditor was only looking at one half of the picture. Fortunately, I was able to show the auditor the whole picture and convince him that the taxpayer complied with the tax rules. If I would have just answered the auditor's questions, I am sure that the auditor would have assessed more tax based on his partial understanding of the rules.

For other examples of what can happen in a tax audit see Case Studies.

If you receive a notice of tax audit, we immediately inform the tax authorities that we represent you. You are not required to talk with the tax auditor. In fact it is best that you not talk to the tax auditor because you may unknowingly mislead the tax auditor into believing that you have not complied with the tax rules. A better explanation and consideration of other tax rules may show the tax auditor that you did comply with the tax rules.

We develop a strategy for dealing with the tax audit.

We do any necessary research to understand the tax rules for any issues that the tax auditor may bring up.

We take the time to understand your side of things and present the information to the tax auditor in a way most beneficial to you.

We can represent you before tax auditors and up through the appeal levels within the governmental authority. We can even help to negotiate a settlement if a tax court petition is filed.

If you want to bullet proof your business and financial transactions, or if you have received notice of a tax audit Contact me today for a free consultation to discuss your situation.

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Frederick A. Thompson, CPA an Accountancy Corporation
(650) 343-5965 • email:
1200 Dore Avenue, Suite 202, San Mateo, California 94401-1214