Comprehensive IRS & Washington State Tax Audit Defense

Opening certified mail to find an IRS audit notification—such as an IRS Letter 566, Letter 2205, or Form 4564 Information Document Request (IDR)—is an alarming experience. The fear of unexpected tax assessments, crippling penalties, or invasive inquiries into your personal and business records is completely natural.

At Sterbick & Associates, our message to Washington citizens and business owners is clear: An audit notification is not a guilty verdict, and you do not have to face federal revenue agents alone. Most audits are triggered by automated computer scoring algorithms (the IRS Discriminant Information Function, or DIF score) or 1099/W-2 reporting mismatches, rather than intentional wrongdoing.

With over 29 years of tax controversy experience, attorney John Sterbick steps in as your legal advocate, managing all interactions with IRS auditors, safeguarding your statutory rights, and shielding you from unwarranted tax assessments.

The Critical Difference: Attorney-Client Privilege vs. CPA Representation

Many taxpayers mistakenly assume their accountant or tax preparer should handle their audit. While CPAs are skilled in preparation, audits are formal legal controversies with significant exposure.

Protection Category Tax Controversy Attorney (John Sterbick) CPA / General Tax Preparer
Attorney-Client Privilege ABSOLUTE. Complete statutory and constitutional protection covering all confidential client communications. LIMITED. Under IRC § 7525, accountant privilege automatically vanishes in any criminal or civil fraud inquiry.
Subpoena Vulnerability Cannot be compelled by IRS or prosecutors to testify against the client. Can be legally subpoenaed and compelled to testify against you regarding workpapers and files.
Preparer Conflict of Interest ZERO conflict. Fiduciary responsibility lies solely with defending the client’s interests. HIGH conflict. May be forced to defend their own preparation errors over your legal interests.
Courtroom & Litigation Authority Formally admitted and licensed to litigate before the U.S. Tax Court and Federal Courts. Not licensed to represent taxpayers or file petitions in U.S. Tax Court.

Furthermore, in what tax attorneys term an “Eggshell Audit”—where a return contains substantial errors, undocumented deductions, or unrecorded cash income—relying on a non-attorney creates immense peril. If the auditor suspects willful misrepresentation, they can refer the file to IRS Criminal Investigation (CI) without notice. Having legal counsel ensures strict adherence to constitutional protections under the Fifth Amendment.

The Three Types of IRS Audits We Handle

Audit Classification Examination Setting & Scope
1. Correspondence Audits (Mail Examinations) Handled entirely remotely via written documentation, substantiation binders, and statutory legal responses.
2. Office Audits (Local IRS Field Office) Detailed review of specific disputed line items conducted before a Tax Compliance Officer at an IRS district office.
3. Field Audits (Revenue Agent In-Person Examination) High-stakes, comprehensive examination of business books and financial operations conducted at our law office.

1. Correspondence Audits (Letter 566 / CP2000 Notices)

These automated audits focus on specific discrepancies such as charitable deductions, business mileage, or missing 1099 income. We reconstruct compliant substantiation binders, draft formal legal response letters, and resolve discrepancies without escalation.

2. Office Audits

Conducted by an IRS Tax Compliance Officer, these examinations scrutinize complex schedule items like unreimbursed employee expenses, rental property losses, or itemized deductions. You do not need to attend this meeting in person. Attorney John Sterbick attends the interview on your behalf under Form 2848 Power of Attorney, answering legal questions while shielding you from pressure.

3. Field Audits

Field audits are conducted by experienced Revenue Agents who inspect books, interview personnel, and examine business operations. We require all meetings to take place at our law office rather than your place of business, preserving your privacy and preventing agents from conducting fishing expeditions across unrelated tax years.

Washington State Department of Revenue (WA DOR) Audits

In addition to federal IRS defense, Sterbick & Associates defends Washington businesses against state tax examinations by the Washington State Department of Revenue. We provide robust defense across:

  • Business & Occupation (B&O) Tax Audits: Defending classifications, exemptions, and gross receipts allocations.
  • Retail Sales Tax & Use Tax Examinations: Reconciling point-of-sale transactions and interstate sales nexus.
  • Public Utility & Manufacturing Tax Controversies: Ensuring proper statutory deductions and credit utilization.

The Audit Resolution & Appeals Roadmap

If an audit concludes with an unfavorable Revenue Agent Report (RAR / Form 4549) assessing excessive taxes and penalties, you are never forced to accept the auditor’s findings.

Defense Stage Procedural Safeguard & Legal Objective
Step 1: Document Filtration & Privileged Audit Reviewing and filtering every requested item to prevent disclosure of unrequested or legally privileged data.
Step 2: Direct Revenue Agent Negotiation Presenting legal precedent, tax code exceptions, and Treasury Regulations to narrow proposed adjustments.
Step 3: Formal 30-Day Protest to IRS Appeals Transferring unagreed findings to an independent Appeals Officer focused on administrative settlement.
Step 4: U.S. Tax Court Petition (90-Day Window) Filing a formal petition under IRC § 6213 to block assessment before a federal judge prior to any payment requirement.

Read our comprehensive analysis on procedural remedies: The Appeals Process vs. Tax Court: Which Path Is Right for Your Case?.

Related Services & Community Representation

Our audit defense practice coordinates seamlessly with our broader controversy services:

Frequently Asked Questions

Can an IRS auditor examine tax years beyond the ones listed in the notice?

The standard federal statute of limitations for auditing a tax return is three years from the date of filing under 26 U.S. Code § 6501. However, if the IRS alleges a “substantial omission of income” (more than 25% of gross income), the window expands to six years. If they allege fraud or unfiled returns, there is no time limit. Having legal counsel ensures auditors are strictly confined to authorized tax years.

What happens if I lost my receipts and records for the audited year?

Under the established legal principle known as the Cohan Rule (Cohan v. Commissioner, 39 F.2d 540), taxpayers are legally permitted to establish legitimate business and deductible expenses using credible secondary evidence, third-party affidavits, bank statements, and industry averages even when original physical receipts are missing. We specialize in reconstructing financial histories that satisfy IRS standards.

What should I do if an IRS Revenue Agent shows up at my home or business?

Politely state that you are represented by legal counsel or intend to retain an attorney before answering questions. Request their business card and identification credentials, and state clearly: “My attorney will contact you to coordinate all future communications.” Do not invite them inside, provide documents, or engage in informal conversations.