Podcast Summary: "What Should You Do If You Get Audited by the IRS (or State Revenue Agency)?"

Podcast: How Tax Works
Host: Matthew Foreman (Co-Chair, Taxation Practice Group, Falcon Rappaport & Berkman LLP)
Episode: 39
Date: November 10, 2025

Episode Overview

In this episode, Matthew Foreman distills the intimidating topic of tax audits into practical and approachable advice. Drawing on his extensive experience with both IRS and state audits, Matt offers listeners a step-by-step guide for responding to audit notices, choosing the right professional help, handling documentation requests, and navigating the pitfalls of penalties, interest, and the broader audit process. The episode is packed with real-world tips, memorable anecdotes, and straight talk about protecting yourself or your clients when the dreaded audit letter arrives.

Key Discussion Points & Insights

1. Initial Steps After Receiving an Audit Notice

• Don’t Panic or Procrastinate
  • "First thing you should do is take a deep breath. A lot of people... read it, they don’t really read it. They skim it. They get terrified..." [03:10]
  • Read the notice carefully—identify the years, topics, and specific issues.
• Timely Response is Critical
  • Don’t ignore the notice or wait until the response window is nearly closed, as extensions are possible but not infinite.
  • "About once a month I'll get a letter, an email from someone who has a response due in two days. They gave you 30... Don’t wait 28 days to do something about it." [04:50]

2. Establishing Contact with the Auditor

• Be Polite and Professional
  • Yelling or adversarial attitudes only hurt your case.
  • "Yelling at the auditor from the start will never, ever, ever help you. It may not hurt you, but it won’t help." [06:50]
• Initial Communication Strategy
  • Make contact to acknowledge receipt, gather information, and express intent to possibly hire representation. Don’t answer substantive questions yet.
  • Treat the auditor as a human being—small talk and building rapport can have a significant positive impact.

3. Choosing the Right Professional

• Do You Need Professional Help?
  • Consider whether your preparer understands the audit’s subject matter; sometimes, an outsider with audit experience is better.
  • "Find someone who has expertise, who's done that kind of audit before or has a lot of expertise in audits." [09:20]
• Buffer and Perspective
  • Hiring someone creates a buffer and can lend a fresh, unemotional perspective to your case.

4. Audit Representation Process

• Power of Attorney & Early Negotiation

  • First step: File a POA, then contact the auditor to introduce yourself and set expectations.
    • "The first thing I do is get a power of attorney... fax it in. Yes, you know, fax is still used." [15:10]
  • Always ask for more time—90 days if possible; even if not granted, it sets a collaborative tone.

• Establishing Rapport Helps

  • Building a casual, respectful relationship can smooth the process.
  • "Appealing to a human side really works... a lot of people really underestimate how much it helps to just talk to a person and treat them like a person..." [17:30]

5. Understanding the Audit Process

• Information Document Requests (IDRs)

  • IRS Form 4564 (for IRS); equivalent forms for states.
    • Read carefully, clarify ambiguous requests, negotiate responses.
  • Tailor your response—only provide what is asked, not everything you have.
    • "You don’t always provide every single document..." [23:40]
  • Redact or limit documentation as necessary; don’t overshare.

• Answering IDRs Effectively

  • Use the "NAP" approach: Narrative, Accurate (with citations), and Polite.
    • "I always use the acronym nap. It’s stupid, but it’s easy to remember, right? Narrative. Accurate and polite." [31:10]
  • Be direct, cite law and facts, and support assertions with third-party documentation when possible.
  • Be unfailingly polite but firm—don’t shy from pushing back on unreasonable requests, but do so respectfully.
    • "Don’t be afraid to push back. Don’t be overly aggressive..." [33:50]

• Assume There Will Be More Questions

  • Audits are iterative; expect follow-ups and narrowly answer only what’s asked.
  • "It is a lot like dealing with a small child, four or five year old. ...you answer the questions directly but narrowly." [25:37]

• The Burden of Proof

  • The taxpayer must substantiate claims—if you can’t prove it, you’ll likely lose.

6. Eggshell Audits and Audit Scope Creep

• Definition and Examples

  • "Eggshell audits" are those where seemingly routine questions could expose larger or sensitive issues (e.g., tax residency, classification of workers, etc.)
  • "An eggshell audit... is a concern where there’s an audit that could bring up sensitive issues." [46:40]

• Audit Can Expand

  • Actions or inconsistencies can trigger broader audits or opposing party audits (e.g., settlements or reporting mismatches).

7. Responsible Person Liability

• Trust Fund Taxes & Personal Liability
  • Sales/use and payroll taxes can trigger personal liability for "responsible persons" (owners, officers, bookkeepers, etc.)
  • Non-owners (like an employee who helps register the business) can inadvertently become responsible.
    • "What I always point out is Jim is now saying that they are a responsible person. And I don’t know if Jim wants that." [54:10]

8. Penalties and Interest

• Interest Is Unforgiving; Penalties May Be Abated
  • Interest is statutory and cannot be negotiated.
  • Penalties—in some cases—can be abated for first time issues or reasonable cause.
    • "Penalties can be abated. The federal government has what’s called first-time abatement..." [59:00]
  • State practices (especially New York) may use penalties as leverage; always push for abatement where justified.

9. Responding to Ongoing or Excessive IDRs

• Limitless Requests?

  • It’s reasonable to push back on repeated requests for the same information—reference prior responses.
    • "If they keep coming, what are they looking for?... I’ve answered this in IDR 6. Question 6, 7, 7, 8. Not answering it again, not looking to negotiate against myself." [01:07:05]

• End of Audit and Statute of Limitations

  • When IDRs stop, the audit is winding down; always consider extending the statute of limitations to allow proper resolution.

Notable Quotes & Memorable Moments

• On reading the audit letter:
  "Sit down and read it, right? And go through it, read what’s said. Some of them are well written and give you an answer. Some of them are just asking for information. Sometimes it’s literally just asking you, hey, did you make a math error?" [03:21]

• On professional representation:
  "Sometimes it can be helpful if you want to hire someone else to kind of blame the return preparer... and that can be helpful... to abate some penalties, let's call it a day and move on." [10:44]

• On rapport building:
  "Being human really helps... a lot of people really underestimate how much it helps to just talk to a person and treat them like a person and how much that really helps..." [17:42]

• On document production:
  "They asked you for who owns it and what the allocations and distributions are. Just send them... the relevant pages. Just remove the rest, redact it, black box it, remove the page, whatever you want. They don’t need to know everything." [23:50]

• On dealing with auditors:
  "I always use the acronym NAP... Narrative, Accurate, and Polite... The best submissions have receipts, right?" [31:15]

• On the psychology of audits:
  "Assume the auditor has that picture and knows the answer to the question. I get stuff all the time from in the crypto space where they're like, 'Well, I'm not giving them this account. I don't think they have it.' I'm like, 'They have it. They know they have it...'" [37:10]

• On burden of proof:
  "Remember, the burden of proof is almost certainly on the taxpayer. ... If you can’t prove it, you will likely lose." [44:40]

• On unreasonable penalties:
  "New York always imposes penalties and they won’t abate them unless you agree to pay. ... I’ve complained about this to New York State... It’s contrary to the law. They are permitted to impose penalties. They are not required. They don’t care. They do it. A lot of states do things like this." [01:02:55]

Timestamps for Important Segments

| Segment | Timestamp | |----------------------------|---------------| | Initial reaction & reading the notice | 03:10-06:00 | | Establishing auditor contact/moderation | 06:00-09:00 | | Choosing professional help | 09:00-15:00 | | Audit representation & setting expectations| 15:00-19:00 | | Audit process: IDRs and documentation | 19:00-26:00 | | Substantiation: what and how to provide | 25:30-28:00 | | NAP: Narrative, Accurate, Polite submission| 31:00-34:00 | | The human side: building rapport | 17:00-18:30 | | Eggshell audits & scope creep | 46:30-49:30 | | Responsible Person liability | 54:00-57:00 | | Penalties, interest, and abatement | 59:00-01:05:00| | Responding to ongoing IDRs/end of audit | 01:07:00-end |

Takeaways and Best Practices

1. Read and Understand the Audit Notice. Don’t panic—step back, read carefully, and clarify as needed.
2. Respond Promptly and Professionally. Don’t ignore deadlines or be combative; politeness is strategic.
3. Consider Experienced Representation. Hire someone with the right expertise to provide both technical knowledge and emotional distance.
4. Control the Narrative. Provide concise, well-supported responses, and only what’s asked for.
5. Expect Iteration and Scope Creep. Be prepared for follow-up questions; keep all answers tailored and substantiated.
6. Document Everything. Receipts, emails, and third-party records trump verbal assurances.
7. Understand Liability. Know who in the organization could be held personally liable for specific tax debts.
8. Push for Penalty Relief. Don’t be afraid to request abatement—many penalties are negotiable.
9. Keep Communication Honest and Respectful. Build rapport and enhance credibility.
10. Know When to Say Enough. Reference previous answers, and don’t endlessly re-answer the same questions.

This episode offers expert-level insight while remaining approachable and actionable for professionals and laypeople alike. Matt’s candor, humor, and clear explanations make it a valuable resource for anyone preparing for or in the midst of an audit.

For even more in-depth detail on appeals and litigation, listen to the next episode of How Tax Works.