Enhanced IRS Audit Activity on Tax Credits
In recent years, the IRS has intensified its audit activities, particularly against organizations in Colorado that file for questionable tax credits. The IRS may impose accuracy-related penalties that range from 20% to 40%, and in cases involving civil fraud, a penalty of 75% on the underpayment related to unsubstantiated tax credits.
It is recommended by the IRS that taxpayers in Colorado who are considering or have claimed tax credits such as the Research & Development Tax Credit, Employee Retention Tax Credit, Work Opportunity Tax Credit, Cost Segregation, or Energy Credits (§179D or §45L) should take precautions. This includes consulting with an independent advisor to ensure their filings can withstand IRS scrutiny. For those who have already filed, it may be wise to consider an amended return after a thorough evaluation.
At The Law Office of Jason Carr, we provide crucial support to Colorado organizations either considering these tax credits or those who have already claimed them. Our firm conducts in-depth analyses to evaluate the defensibility of your tax credit filings against IRS audits. We offer expert advice on potential corrective actions to mitigate any adverse consequences your organization might face.
In addition to providing IRS tax credit audit defensibility analysis and tax opinions, The Law Office of Jason Carr also specializes in defending focused tax credit audits such as R&D, Employee Retention Tax Credits, Cost Segregation, and the Work Opportunity Tax Credit in Colorado. Let us help you navigate the complexities of IRS scrutiny with confidence.
What We Do
- Conduct interview with key team member(s) and advisors to determine level of evidentiary substantiation available.
- Research relevant law to determine whether your organization more than likely satisfies eligibility requirements.
- Provide a written audit defensibility analysis report or tax opinion with our findings, including potential areas of concern (when necessary).
- Our firm is also available for defense in tax credit focused audits, should the need arise (additional fee required).
Frequently Asked Questions
Q. Are tax credits legal?
A. A tax credit is a legal and legitimate way for a business to lower their tax liability, so long as the claim can be substantiated with appropriate evidentiary support.
Q. What is the difference between a tax deduction and a tax credit?
A. Tax deductions are claimed by businesses to reduce taxable income ((e.g., advertising expense, office expense, utilities, etc.) , while tax credits are subtracted directly from a company’s tax liability.
Q. What is the statute of limitations for tax credit related fraud?
A. It depends, but typically, statute of limitations fall within 3- or 6-years:
— 3 Years: For most returns, the IRS has a 3 year statute of limitations from the due date. Generally, that would mean 3 years starting April 15th of that tax year. For those who receive a tax extension, that would mean 3 years starting October 15th of that tax year. In the event that you file your taxes late, your 3-year statute of limitations still begins on the day that your taxes were due.
— 6 Years: In the event that you’ve made a “substantial understatement of your income”, meaning you’ve underreported by 25% or more, the IRS has 6 years from your tax due date to audit you.
Q. What is the cost of this service?
A. Our tax credit fees are based on our flex-fee structure, and all costs are pre-approved by you when you decide to hire us. There are no surprises, no add-ons. Because every situation is different, we recommend you Schedule a Tax Consultation so we can discuss your situation in detail.