Do not be lulled to sleep by your IRS Audit. And be particularly mindful if you have an “eggshell” audit. An “eggshell” audit is an audit situation where a taxpayer has damaging information, maybe even criminal behavior, that the IRS Examiner does not know about. In that case, the taxpayer is “walking (carefully) on eggshells” trying to avoid making any representation that can be used against them, while at the same time not making any false misrepresentations or omissions. The taxpayer then cannot concede too quickly, raising the suspicion of the IRS Examiner. It is a delicate dance.
There are two things that should concern taxpayers in “eggshell” audits: one is long delays by the IRS Examiner and two is an abrupt ending of the audit by the IRS Examiner. First, IRS Examiners have large caseloads and are not likely to keep cases on their desks for no reason. It is possible – during those long delays – that they are working with IRS Special Agents (IRS Criminal Investigation Division, CID) to ferret out criminal activity suspected in your audit. Second, the abrupt ending of an audit is just as concerning. Do not be lulled into believing that you have successfully convinced the IRS Examiner of all your tax positions. The abrupt end may result from a CID referral to a CID Special Agent. There is no way to know for certain but be wary of the red flags. You don’t want to break the eggshell.