How Do CPA Firms Handle Audits?

Dimov Tax Services operates a Denver based accounting firm that provides expert CPA support, tax audit representation, payroll processing, and international tax solutions for individuals and businesses. Located at 1700 Lincoln St, they serve clients throughout the Denver area.

Dimov Tax Specialists

When the IRS or Colorado Department of Revenue initiates a tax audit, many individuals and small businesses panic—not because they’ve done something wrong, but because they’re unfamiliar with the process. A certified public accounting (CPA) firm brings not only technical expertise but legal representation, communication experience, and procedural control. In Denver, CPA firms like Dimov Tax Specialists help clients navigate audits by managing every interaction with tax authorities, gathering documentation, crafting response strategies, and defending clients' positions.

Types of Audits CPA Firms Handle

CPA firms are authorized under IRS Circular 230 to represent taxpayers during all types of audits, including:

• Correspondence Audits: The most common and least invasive, these involve letters from the IRS requesting clarification or documentation for specific items (e.g., charitable donations, 1099 income, or business expenses).
• Office Audits: Conducted at a local IRS office, these reviews may include itemized deductions, reported income, or claimed credits.
• Field Audits: In-depth and often complex, these take place at the taxpayer’s home or business. The IRS agent reviews financial records in person.
• State Tax Audits: Colorado audits, especially from the Department of Revenue, may involve sales tax, wage withholding, and nexus compliance. These are increasingly common with remote and e-commerce businesses.

Dimov’s Audit Handling Process

Here’s how Dimov Tax Specialists manages an audit from beginning to end:

1. Pre-Audit Strategy Session

Before responding to the IRS or state, Dimov holds a confidential consultation with the client. This includes:

• Reviewing the notice and assessing the scope
• Determining audit risk exposure based on entity type, prior filings, and business activity
• Explaining legal rights under the Taxpayer Bill of Rights (TBOR)

2. Filing Power of Attorney (Form 2848)

Dimov files IRS Form 2848, giving the firm legal authority to speak with the IRS on the client's behalf. From this point forward, the CPA firm handles all communications and correspondence, sparing the client from direct contact.

3. Document Collection and Preparation

Dimov assembles a complete package that aligns with IRS requirements. This includes:

• Bank statements, general ledgers, and receipts
• Mileage logs, payroll reports, and invoices
• Prior-year filings and amended returns if applicable

All documentation is categorized and formatted per IRS standards to preempt additional requests via Form 4564 (Information Document Request).

4. Representation During the Audit

Dimov CPAs act as the point of contact for the audit officer. This means:

• Responding to IRS or Colorado DOR inquiries
• Attending in-person or virtual audit meetings
• Providing substantiating documentation and legal interpretation

5. Post-Audit Negotiation and Resolution

If the audit results in proposed changes (an assessment), Dimov evaluates the IRS findings. They may:

• Accept and settle if justified
• Dispute and appeal the audit if the evidence supports the original filing
• Set up payment plans or Offers in Compromise for clients with balances due

Denver-Based Examples: Audit Defense in Action

• LoHi E-commerce Startup: Flagged for uncollected sales tax across multiple states. Dimov reconstructed marketplace sales records and successfully defended the client’s physical nexus limitations.
• Capitol Hill Therapist: Audited for home office deductions. Dimov’s team provided square footage measurements, exclusive use logs, and depreciation schedules to justify the claim.
• DTC Biotech Firm: Questioned over R&D credits. Dimov prepared technical documentation and payroll allocations showing direct ties between projects and claimed credits, resulting in no adjustment.

Forms and Legal Structures Used During Audits

CPAs use a variety of IRS and Colorado forms during audit representation, including:

• Form 2848: Power of Attorney
• Form 4564: IRS Information Document Request
• Form 12203: Request for Appeal
• Form DR 0252: Colorado Power of Attorney

They also reference IRS Publication 556 (Examination of Returns) and Publication 1 (Taxpayer Rights) to protect clients during proceedings.

Why a CPA Is the Right Audit Partner

Not all https://cpa-denver-colorado.s3.us-east.cloud-object-storage.appdomain.cloud/cpa-firm/real-estate-cpa-denver.html tax professionals can represent clients during audits. Only CPAs, EAs (Enrolled Agents), and attorneys have unlimited representation rights. CPA firms provide a unique combination of:

• Detailed understanding of accounting records and ledgers
• Legal authority to interact with IRS/state agencies
• Experience with audit cycles and resolution tactics
• Ability to amend past returns or recommend compliance fixes

At Dimov Tax, audits are handled discreetly and rigorously, with client protection and favorable resolution as the highest priorities.

What You Should Do If Audited

Conclusion: Audit Support from CPAs Is Critical

CPA firms like Dimov Tax Specialists in Denver don’t just file returns—they defend them. From preparing bulletproof https://servicebucket.blob.core.windows.net/cpa-denver-colorado/cpa-firm/what-can-a-cpa-do-that-an-accountant-cant.html documentation to representing you at every stage of an audit, their role is crucial for protecting finances, rights, and peace of mind. Whether you’re a gig worker in RiNo, a restaurateur in Capitol Hill, or a high-income consultant in DTC, proactive audit readiness and competent representation from a CPA can make all the difference.