IRS Audit & Refund Notice Assistance for High Net Worth Individuals in Los Angeles

The IRS does not examine every return at the same rate. Coverage climbs with income, and it climbs faster with complexity. A household living on wages reported on a single Form W-2 hands an examiner almost nothing to test. A Los Angeles family reporting flow-through income from four partnerships, a rental portfolio, an equity award that vested in March, and a gift of appreciated founder stock hands that same examiner a dozen testable positions inside one filing. Density of judgment calls, not wealth by itself, is what moves a return up the queue. That is the honest reason demand for irs audit help for high net worth clients in Los Angeles runs so far ahead of demand among salaried filers.

Selection is arithmetic long before it is human. Returns get scored against statistical norms for comparable income, and entries sitting far outside those norms lift the score. A charitable deduction on Schedule A that is large against reported income lifts it. Losses on Schedule E from rentals or partnerships lift it too, especially where the passive activity limits described in Publication 925 would normally suspend them. Capital transactions on Schedule D and the supporting Form 8949 get matched line by line against custodian reporting. Document matching handles the rest, because every Form 1099-DIV and Form 1099-R issued in your name reaches the IRS whether or not it ever reached your desk.

Here is how that plays out in a real file. A client reported 3,400,000 dollars of adjusted gross income on Form 1040 and claimed a 600,000 dollar deduction for a gift of privately held founder stock to a donor advised fund. The gift was real and the intent was clean. The appraisal behind it was eleven months old at the transfer date, and its comparable transactions all predated a down round that had repriced the company. The examiner allowed 540,000 dollars and disallowed 60,000 dollars, producing roughly 22,000 dollars of additional federal tax before interest. California collected its own share on top, since state taxable income moves with the federal charitable number. The position was never aggressive. The paperwork was simply thinner than the figure it was asked to carry.

The common mistake is believing that careful preparation removes the risk. It does not. No return is beyond an audit, and a filing can be completely correct and still get selected, because the scoring reacts to how unusual numbers look rather than to whether they are right. The second mistake is quieter and costs more. Families treat an examination as an accounting problem that begins when the letter arrives, when it is really a documentation problem that was decided years earlier, on the day the appraisal was ordered or the mileage log was skipped. Records built as events happen tend to win examinations. Records reconstructed under a 30 day deadline rarely do, and the IRS recordkeeping guidance is plain about the standard it expects.

Our work on this starts long before any notice exists. Clean books maintained through our bookkeeping service and positions built deliberately during tax strategy consulting are what an examination actually tests. The return we file through our individual tax return work is only the summary of that underlying file. As the data partnerships and custodians report keeps getting more detailed each year, the distance between a documented return and a merely accurate one will keep widening, and the households that close that distance now will spend far less of the next decade answering questions about it.

Find the notice number before you find your blood pressure. It sits in the upper right corner, and it tells you exactly what you are holding. A CP2000 is not an audit at all. It is a proposed change generated by document matching, which means a computer found a payer form that did not tie to your return and calculated tax as if the worst case were true. A Letter 2205 or Letter 566 is a genuine examination opening. A CP14 is a balance notice for tax already assessed. These call for entirely different responses, and the IRS notice reference page will identify yours in about a minute. A surprising share of requests for irs audit help for high net worth clients in Los Angeles begin with a letter the client has already misread in one direction or the other.

Then find the deadline and treat it as real. Most correspondence carries a 30 day window, and some of those windows control rights you cannot get back. The response date on a CP2000 governs whether the proposed change becomes an assessment by default. A statutory notice of deficiency carries a 90 day clock that is fixed by law and cannot be extended by a phone call or a polite request. Missing a date rarely destroys the underlying position, but it moves the fight to worse ground, converts a proposal into a bill, and starts interest running on money you may not owe.

Before answering anything, pull your own record of what the IRS sees. Order account and wage transcripts through the IRS transcript service, or request them on Form 4506-T when a third party needs them directly. The wage and income transcript lists every payer form filed under your Social Security number, and it routinely shows accounts a client forgot, a custodian consolidated, or a former employer reported late. Answering a notice without that transcript means arguing about a picture you have not seen.

A worked example makes the stakes concrete. A client received a CP2000 proposing 84,000 dollars of additional tax plus penalty. The trigger was 310,000 dollars of securities proceeds reported by a broker with no cost basis attached, because the shares had been transferred in from a legacy account and basis never followed. The IRS had assumed basis of zero, as the matching program always does. We reconstructed basis of 286,000 dollars from statements and the original purchase confirmations, filed the schedule the broker had not, and the actual tax on the 24,000 dollar gain came to about 4,900 dollars. The 84,000 dollar number was never a tax liability. It was an absence of information, and it would have become an assessment on day 31.

The common mistake is picking up the phone and explaining. Clients call the number on the notice, talk for twenty minutes, and volunteer facts about three other transactions the letter never mentioned. Every word is written into the file. The other frequent error is paying immediately to make the anxiety stop, which concedes a position that documentation would have won. Route the letter to us the day it arrives, keep your books current so the answer already exists, and let the response come from the team that filed the return. As matching programs keep expanding into new payer forms, the volume of these letters will keep rising, and the households with reconciled records will treat them as clerical rather than existential.

It puts a professional between you and the examiner. Form 2848 is a power of attorney and declaration of representative, and a certified public accountant is one of the categories of practitioner authorized to file it. Once it is on record, the IRS sends correspondence to us, schedules through us, and directs questions to us. You are not required to attend the examination. You are generally not required to speak to the examiner at all in a civil matter. That single structural fact changes outcomes more than any argument made inside the exam, which is why representation sits at the center of irs audit help for high net worth clients in Los Angeles.

The form is deliberately narrow, and you should keep it that way. It names specific tax matters and specific years, so a 2848 covering 2024 income tax does not authorize anything about 2022 or about employment tax filings under the employment tax rules. That precision is protective. It defines what we can discuss and, just as usefully, what the examiner may not expand into without opening a new matter and telling you about it first. We usually file it for the year under exam and nothing more, then reassess if the scope grows for a legitimate reason. Clients sometimes want a blanket authorization filed for every open year at once, thinking it saves a step later. It gives away control of the perimeter.

Representation also comes with a boundary worth naming. We are a CPA firm and we do not practice law. We read the IRS guidance for individuals and their businesses, apply the code and the regulations to your facts, assemble substantiation, and argue the tax merits of the position taken on your Form 1040. If an examination starts showing signs of turning toward a fraud referral, we stop and bring in your attorney, and communications get restructured so privilege attaches the way it should. Knowing exactly where our lane ends protects you far better than a firm willing to blur that line for the sake of the engagement.

The dollar case for representation is easy to draw. A client with 2,100,000 dollars of income tried to handle a correspondence exam personally to save a fee. The letter asked about one item, a 48,000 dollar deduction for professional services. In answering, he explained that the same consultant had also worked on a rental property and on a side venture that filed its own return. The examiner expanded the matter to two additional years and three entities. The final assessment came to 46,000 dollars, and roughly 31,000 dollars of that arose from years and issues the original letter never raised. Our fee would have been a fraction of the difference. He did not lose because he was wrong on the merits. He lost because he answered a question nobody had asked him.

The mistake underneath that story is treating cooperation and volunteering as the same thing. Answer what was asked, completely and with documents attached. Do not narrate. An examiner works from limited hours and a specific list, and every unprompted detail becomes a new line on that list. Keep books that can answer on demand and use planning work to decide in advance which positions you would be comfortable defending in front of a stranger. As the IRS continues shifting examination capacity toward high income and partnership filings, having representation already arranged, rather than assembled in a panic after a letter lands, will separate a contained matter from a widening one.

You start from an uncomfortable premise. In a civil examination the burden of proof generally sits with you, not with the government. The examiner does not need to disprove your deduction. You need to prove it, and belief is not proof. This is where most of the money moves in irs audit help for high net worth clients in Los Angeles, because the positions themselves are usually defensible while the files sitting behind them are not. The better news is that every substantiation rule is written down years in advance, so nothing about the standard should ever arrive as a surprise on the day an examiner asks.

For charitable gifts the rules are mechanical and unforgiving. Any single contribution of 250 dollars or more needs a contemporaneous written acknowledgment from the charity, and contemporaneous means you already held it when you filed, not that you obtained it after the examiner asked. The acknowledgment has to state whether you received goods or services in return. Noncash gifts above 5,000 dollars generally require a qualified appraisal from a qualified appraiser, prepared near the contribution date rather than reconstructed later. Deductions land on Schedule A, and the framework in Publication 17 walks through the percentage limits that apply based on what you gave and who received it.

Business deductions run on a parallel track with its own rules. Ordinary and necessary expenses are described in Publication 535, but travel, meals, and vehicle costs carry heightened substantiation under Publication 463. Those categories demand the amount, the date, the place, and the business purpose, and a canceled check proves only that money left an account. The IRS recordkeeping standard expects records made at or near the time of the expense, and Publication 583 describes the kind of system that produces them without heroics. A calendar rebuilt from memory in April carries far less weight than a log kept as the year actually happened.

The arithmetic turns brutal fast. A client claimed 180,000 dollars of expenses across a management company and a consulting activity reported on Schedule C. Everything had cleared a business account and every dollar had genuinely been spent. Under examination, 62,000 dollars fell out anyway. Roughly 24,000 dollars of travel and meals had no business purpose noted anywhere in the file. About 19,000 dollars of vehicle expense rested on an estimate rather than a log, which matters because the standard mileage rate for 2026 is 72.5 cents a mile and that rate is worthless without documented miles behind it. Another 19,000 dollars turned out to be personal spending that had drifted onto the business card over eighteen months. Additional federal tax landed near 23,000 dollars, with California adding its own layer and an accuracy penalty riding on top of both.

The common mistake is confusing a bank feed with a record. A transaction shows what was paid and to whom. It never shows why, and why is the entire test. Fix that with bookkeeping that captures purpose at the moment of entry rather than at year end, and pair it with strategy work that decides what documentation a position will need before the position is ever taken. Substantiation standards have only tightened across the last decade, and the taxpayers who treat the file as part of the deduction itself, rather than as paperwork about it, are the ones who keep what they claim.

Yes to both, and the second one surprises people far more than the first. Amending is routine. Form 1040-X corrects a filed return, and you generally have three years from the original filing date, or two years from when the tax was paid, to claim a refund. Filing one does not automatically trigger an examination, though it does draw human eyes rather than machine eyes, so the amendment should arrive with its explanation already complete. Where an amendment corrects a real error found during a review, filing it voluntarily is usually the better posture, and it is a normal part of irs audit help for high net worth clients in Los Angeles rather than an admission of anything.

Now the part that costs Californians real money. The Franchise Tax Board is a separate agency running separate examinations under separate rules and a longer statute of limitations than the IRS. You can close a federal exam cleanly and be examined by the state on the same year anyway. California conforms to federal law only partially, so the state can attack items the IRS never questioned. California allows no qualified business income deduction, so the federal benefit claimed on Form 8995 is added straight back. California taxes capital gain as ordinary income at the full marginal rate. California runs its own alternative minimum tax alongside the federal computation on Form 6251, and it uses its own depreciation rules rather than federal bonus depreciation.

The residency examination is the sharpest edge. A wealthy Californian who moves away does not stop being a California taxpayer because a moving truck left. The FTB tests where you actually live using a long list of connections, including where your family sleeps, where your physician practices, where your vehicles sit registered, and how many days you spent inside the state. It also keeps taxing California source income after you go, so rent from a Los Angeles building and gain from California real estate remain taxable regardless of your new address. Deferred compensation and equity earned while you were a resident can be sourced back to the period in which you earned it.

Consider a founder who moved to Nevada in March and sold company stock in September for a 9,000,000 dollar gain. He kept the Los Angeles house so his daughter could finish the school year, stayed on two local boards, and spent 148 days back in the state. The FTB opened a residency examination and asserted he had never truly left. Exposure on that single gain reached roughly 1,200,000 dollars of state tax before interest, and the fight turned entirely on facts he had created casually across nine months. His federal return was never in question. The state one was, and it was decided by his calendar rather than by his intent.

The common mistake is assuming a federal clearance means the matter is closed. It does not, and a California file can open a year later on facts nobody thought to preserve. Keep records that hold up, coordinate any departure through planning work before the calendar is set rather than after, and if a notice from either agency is already sitting on your desk, Request Private Consultation so that someone reads it properly this week. State residency enforcement has grown steadily as more high earners leave, and the households that document a move while it happens will be the ones who keep the benefit of having made it.