Facing an IRS Audit
Caplin & Drysdale
Facing an IRS Audit

When the IRS begins an audit of your organization, the possible consequences might be much more serious than simply a bill for tax due. Your exempt organization might lose credibility with the public and with donors, tax-exempt financing, and possibly its exemption altogether. Caplin & Drysdale can defend your exemption – and everything that depends upon it – when the IRS examines you.

Our attorneys have represented all kinds of exempt organizations in every stage of the audit process including litigation. We frequently work as part of a team with in-house counsel, local counsel, and other lawyers who have an established relationship with the organization, to provide our experience with IRS processes and personnel. This experience is often critical to preserve the client's tax-exempt status and minimize any other ill effects from the audit process.

Representative Engagements

  1. A large nonprofit health care system was undergoing an IRS audit when the IRS agent proposed revocation of the entire system's exempt status. The client needed sophisticated exempt organizations counsel to help it preserve its exemption and close the audit.

    Result: Working with the client and local counsel, Caplin & Drysdale developed a strategy, retained and supervised valuation experts, coordinated fact-finding, drafted an extensive written submission to the IRS, and ultimately negotiated a very favorable settlement with the local agent. The organization retained its exempt status and paid a minimal dollar amount as part of a closing agreement.
  2. A prominent university that had already been subject to an enforcement action by its State Attorney General found itself subject to an IRS audit. Worrying about a large amount of outstanding tax-exempt debt and that its exemption might be revoked (because of the compensation packages for senior officials that the IRS and State Attorney General were questioning), the university went in search of experienced D.C.-based exempt organizations counsel.

    Result: Caplin & Drysdale worked with the university and the university's outside counsel to develop a decisive rebuttal to the IRS allegations. Consequently, the IRS agreed to settle the case for a very modest payment.
  3. A foundation affiliated with a public university was concerned about its compliance with all appropriate tax laws. It decided to bring in outside counsel for a thorough review.

Result: Caplin & Drysdale retained the forensic accounting staff of a large accounting firm and coordinated a detailed review of the organization's recent operations. Together with the accounting firm staff, we reviewed the records and interviewed numerous personnel from both the foundation and the university. Caplin & Drysdale then analyzed the results of the review under existing tax law and provided a written report with specific recommendations to the Board of the foundation.

Our Services

We can guide you through the audit process with effective legal analysis and strategies at each of the following stages:

    • Initial contact with the IRS agent
    • Responses to Information Document Requests
    • Preparation of requests for technical advice
    • Negotiation of closing agreements
    • Protests
    • Tax Court litigation

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