The Hidden Tax Risks in “We’ve Always Done it This Way”
Recently, headlines about reductions in IRS staffing and audit activity have given business owners a sense that their tax risk is fading. Significant workforce cuts have reached multiple divisions across the IRS, shrinking the overall headcount by roughly a quarter since mid-2025 and resulting in fewer routine audits, especially for average taxpayers.
At the same time, IRS leadership has acknowledged that audit coverage remains below historic norms for most taxpayers, even as filings and complexity continue to grow. The prevailing narrative has become that the IRS “isn’t auditing much anymore.”
That framing misses a critical point. Today’s tax risk isn’t about frequency—it’s about intensity and impact when issues do arise. When long-standing practices finally draw attention, they are often examined more deeply and with higher stakes than before.
Business owners who treat long-standing, informal practices as inherently safe may be blindsided when selective enforcement or deeper reviews expose hidden liabilities. Understanding where those risks live—and when they require legal review—is key to avoiding tax controversy.
Why "We've Always Done It This Way" Persists
Informal tax practices aren't inherently negligent. They often grow out of familiarity ("we've never had an issue"), operational convenience, legacy systems, or reliance on early guidance that was never revisited. There is a natural comfort in routines that appear to work—but comfort is not a defense in an IRS dispute.
Whether your practices originated five or 15 years ago, they were developed under different assumptions about business structure, tax law interpretations, and enforcement priorities. Longevity alone does not make a tax position defensible—it often just makes it harder to unwind.
The Types of Practices That Quietly Create Exposure
What often gets overlooked aren't explicit errors, but patterns of informal decision-making that become harder to explain later. Some common examples include:
Owner compensation and distributions handled inconsistently, particularly where pay and distributions blur and raise questions about reasonable compensation.
Blending personal and business expenses, because without clear segregation, deductions and reimbursements become harder to justify under scrutiny.
Owner loans without clear documentation, and informal "loans" that lack proper promissory notes, repayment terms, or consistent treatment, which invites reclassification concerns.
Payroll or classification shortcuts, such as misclassification of workers or inconsistent payroll treatment that may feel routine until an issue triggers a deeper look.
Reliance on old advice never revisited, such as tax opinion letters, spreadsheet workarounds, or off-hand counsel that hasn't been updated and can fall apart under review.
These are judgment calls, not obvious errors—which is exactly why they tend to persist quietly and become difficult to defend later.
Why These Issues Surface in Today's IRS Environment
With the IRS operating under staffing constraints and shifting audit strategies, traditional broad-based audit rates have come down. But the IRS hasn't backed off enforcement—it’s become more selective. What does that mean for business owners?
It means selective enforcement on higher-stakes areas. Instead of more random audits, the IRS deploys its limited resources against returns, structures, or taxpayers where the potential impact is greatest.
Also be aware that penalties and consistency become central, and a single anomaly can trigger questions about intent and reasonableness, not just technical compliance.
Additionally, issues tend to surface in critical business events, and reviews often take place during business sales, ownership changes or disputes, restructuring, post-filing corrections, and appeals on a single year that drag related years into focus. When matters are reviewed today, they're reviewed deeply, and what once "slipped by" can now cost significantly more in penalties, interest, and reputational impact.
Where Accounting Ends and Legal Risk Begins
Accountants play a critical role in compliance, reporting, and bookkeeping. When informal practices are questioned, the issue is no longer just whether the numbers add up—it’s whether the position can be legally defended.
At that point, interpretation matters: how intent is inferred, whether documentation supports the position, and how exposure and penalties are assessed. These are legal judgments, not accounting ones—and they often benefit from attorney-client privilege and strategic legal framing. This is where an IRS tax attorney can help with your legal tax defense. Your business may need support for assessing exposure, evaluating penalties, and reading enforcement signals.
Why Business Owners Turn to Kundra
At Kundra and Associates, we're not just a firm that knows tax law. We also understand how issues escalate in an enforcement environment that rewards focus and depth over breadth. With years of experience in tax controversy, IRS negotiation, and litigation, as well as insight into how the IRS evaluates intent, reasonableness, and consistency, we can address your IRS dispute or other tax controversy today.
We have offices in Maryland, Washington, D.C., and abroad to represent clients across the U.S. and internationally, and we're grounded in the principle that well-run businesses evolve, and tax positions should evolve with them.
The goal is foresight. Remember, informal tax practices don't disappear because audit rates dip. Instead, they can become amplified liabilities once they draw scrutiny. We can help you avoid that and protect you if an issue has already arisen.
Addressing risk early preserves options and control, long before informal practices become formal problems. With thoughtful legal review and strategic tax advisory, we can help businesses like yours navigate today's selective enforcement environment with confidence. Get in touch with us today, and let's talk about how an IRS tax attorney can address your tax concerns.