Audit to Lawsuit: Spot the Line Before You Cross It (Webinar Recording)
When does a routine IRS audit stop being routine? For most CPAs, the answer is obvious in hindsight but rarely clear in the moment. The risk doesn't shift because of one dramatic event. It shifts through smaller developments: a question about intent, a client who wasn't fully transparent, an IRS agent who goes silent, or a legal agreement the auditor can't interpret.
In this webinar recording, tax attorney Chaya Kundra walks practitioners through the real decision points that arise during IRS examinations, the moments when legal risk changes, and what accounting professionals can do to protect both their clients and themselves.
About This Presentation
This 30-minute session was recorded on August 5, 2026 and is designed for CPAs, enrolled agents, and tax professionals who represent clients during IRS audits. It covers practical guidance drawn from Chaya's decades of experience in tax controversy and resolution, including real scenarios, live Q&A, and tactical advice you can apply immediately.
Building the Administrative Record from Day One
One of the most actionable themes is documentation from the very first IRS interaction. Get everything in writing. Request formal IDRs. If the IRS makes a verbal request, follow up for written confirmation. The framing Chaya suggests: "I'm just trying to make sure I'm giving you what you need so I can help facilitate this audit."
As she explains: "What you're doing is you're effectively creating the record. Because tomorrow, if it does go to appeals, if after appeals the taxpayer wants to go to court, the administrative record is there. And the lawyer who picks it up is going to have a beautiful record."
That record establishes the single most valuable thing a practitioner can demonstrate in an IRS dispute: cooperation.
The IRS Has Changed, But Not How You Think
The enforcement environment isn't simply about fewer agents. The substantive tax law hasn't changed much. As Chaya puts it: "162 is 162. Business deductions are business deductions. The changes, however, are in procedure."
Workforce reductions were followed by targeted hiring and retraining. "The people that are being hired and the people that are still there are being retrained. They're being trained to be a bit more sophisticated on certain areas." IRS agents now specialize in real estate, cryptocurrency, or industry-specific areas.
At the same time, communication has become unreliable. The recommendation: leave voicemails, follow up in writing within 48 hours, document every attempt. "You're establishing the record and you're showing the government that your client is cooperating."
The Statute Extension Decision (Form 872)
The assessment statute gives the IRS three years from filing to examine a return. When that window narrows, they'll ask you to extend it. Refusing doesn't make the audit disappear: "The IRS isn't going to back off and say, 'the statute's going to expire, I'm going to leave this alone.' They're going to come back and just make the assessment because you weren't there."
Signing the 872 keeps you in audit, which is often preferable. But timing matters. "If they ask you to sign the 872 early, you can just say, I've got two years on the statute. Why am I signing? We should be able to get this resolved."
When the Risk Starts to Change
The core of the webinar focuses on recognizing when an audit shifts from a substantiation exercise into something with broader legal consequences. Chaya identifies several triggers:
Complex legal agreements. When a contract or partnership arrangement is too complex for the auditor to interpret, the matter moves into legal territory. In one case, the group manager himself told Chaya the issue needed escalation, and even provided strategic guidance. "When we're talking to the IRS, be open, because sometimes they will give us wonderful nuggets of what they're really looking for."
Questions of intent. When the IRS moves from asking "how much" to asking "why," the examination has fundamentally changed. "Intent, intent, intent. Stop, involve counsel when there is a question of intent."
Unreported foreign income. Discovering mid-audit that a client has undisclosed foreign accounts creates an immediate strategic decision. "Usually you don't want to let them find it, but it is a strategic conversation that you might want to have with an attorney before you disclose." Importantly, current filing requirements don't pause because an audit is open. "You can't keep perpetuating a failure to disclose."
Clients who haven't been honest. If you learn mid-audit that business deductions were fabricated or income was mischaracterized, that's no longer a substantiation dispute. "Really good time to call in a lawyer."
Risky positions taken against your advice. Chaya uses the example of an incorrect QBI deduction worth $90,000 in tax. The focus shifts to mitigating exposure and preventing escalation to civil fraud or criminal referral.
Protecting Yourself as the Preparer
The webinar also addresses what happens when the client turns on the CPA. If you prepared the returns and are now representing the client, there's inherent exposure. A client may claim they disclosed information you didn't act on, or blame filing positions on you.
Chaya paints a vivid scenario: a client says "I told you about this foreign inheritance in 2023. I told you in 2024. It's your fault you didn't report it." At that point, the CPA has a conflict of interest.
The guidance: "When that happens and your stomach starts going in knots, you want to think about that as an occasion when you contact an attorney. Not because you want representation, but because you want the attorney to take over the representation."
She also addresses the Kovel arrangement, which arises when criminal exposure exists and the attorney needs forensic accounting under privilege. The accountant's work product is protected under the attorney's privilege for a limited period, requiring segregation of related documents.
Trusting Your Gut and Setting Expectations Early
One of the most memorable moments: "If it walks like a duck, talks like a duck, quacks like a duck, it's probably a duck."
Chaya compares involving an IRS tax attorney to a GP referring a patient to a specialist: "I'm not going to get mad at my doctor for that. I'm actually going to appreciate my doctor saying, let's just make sure we take care of you completely."
Her recommendation is to set that expectation with clients from the start: "You can say to your client, listen, I prepared your returns. I'm happy to do the audit for you, but there may come a time when I'm going to suggest that we bring in a professional. And I just want you to know that's going to be because I think you will be better served."
The Attorney's Role Is Limited (and That's the Point)
A key theme throughout, and one that reflects the collaborative approach Kundra & Associates takes with practitioners: involving legal counsel doesn't mean losing your client.
"The attorney that you hire is hired for a very limited purpose. They're not interested in taking over your tax prep business. They don't want to prepare the returns. They just want to assist you with defending them. Once it's done, you get the case. You're still going to remain the accountant."
The only exception: when criminal exposure requires a firewall between the legal defense and the accounting work. Outside of that, the relationship continues as it was.
Key Takeaways for Practitioners
Evaluate intent before deciding how to respond to IRS inquiries
Don't let clients talk directly to the IRS without preparation and oversight
Get all deadlines in writing and calendar them immediately
Manage document production rather than letting clients send materials piecemeal
Define your role and its boundaries at the start of every engagement
Ask clarifying questions of the IRS, framed as: "I'm trying to help get you what you need"
When something feels off, trust that instinct and pick up the phone
Work with Kundra & Associates
At Kundra & Associates, we work alongside CPAs every day, not in place of them. When an audit shifts from numbers into legal territory, having an IRS tax attorney involved early preserves options, protects the record, and keeps the matter from escalating unnecessarily. The goal is always the same: resolve the issue and keep the client relationship intact.
If you're a tax professional navigating a situation where the risk is changing, or if you want to establish a relationship with legal counsel before you need one, get in touch with us today.