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What is an 'eggshell audit'? And who should handle it?

You get an audit letter in the mail. The IRS is expressing concerns about the possible overstatement of deductions or underreporting of income.

Normally you would interact with your accountant or tax preparer about any tax-related issue. But if you know that you signed a return that was simply not accurate, does that really make sense?

The answer is no, because you are faced with a sensitive situation that is colloquially known as an "eggshell audit." In this post, we will explain what that is and who should handle it.

Eggshell audit is not a formal term. But it is commonly used to describe a situation in which a taxpayer is facing a civil tax audit and could potentially be referred for criminal prosecution.

The IRS could make this referral if the revenue agent who is conducting the civil audit believes that you filed a false tax return. And even if you ultimately aren't prosecuted, you could have to pay a stiff penalty for civil fraud.

The sensitivity of this situation is such that it's like walking on eggshells. You want to resolve the tax audit without incurring any criminal consequences.

Because of the risk of criminal investigation, it's best to turn to a tax attorney for help, rather than to your accountant or tax preparer. If there is a criminal investigation, the government could force your accountant to disclose to the IRS what you told him or her.

With a tax attorney, however, you can speak freely. This is because the attorney-client privilege protects the confidentiality of communications you have with your attorney.

A knowledgeable tax attorney can also help in resolving the issues that led to the civil audit and potential criminal investigation.

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