Few things cause more stress for taxpayers than receiving a letter from the IRS that begins with the word “Notice.” In New York, that envelope is more common than many realize. High earners, freelancers, small business owners, and landlords in NYC are audited at higher rates than in most parts of the country. With three layers of taxation—federal, state, and city—the chances of something being flagged are real.
The good news is that an audit does not automatically mean you did something wrong. It simply means the IRS is seeking clarification. The difference between a nightmare and a manageable process often comes down to one factor: having professional representation on your side.
Why IRS Audits Happen
In our practice, we see three main triggers for audits in New York.
- Unreported income
With the volume of freelance and gig work in the city, taxpayers often overlook that every 1099 is reported directly to the IRS. When reported income does not match your return, it is quickly flagged.
- Suspicious deductions
Claiming expenses that are unusually high relative to income or industry norms can raise red flags. For example, a small design studio reporting $40,000 in travel expenses with minimal revenue is likely to draw scrutiny.
- Multi-state issues
Many New Yorkers work remotely or relocate during the year. If income is reported in multiple states, the IRS and New York State expect consistent treatment. Mismatches are a common trigger for closer examination.
Audits are rarely random. More often, they result from small inconsistencies that compound over time.
The Audit Process Step by Step
An audit usually begins with a notice. The IRS explains which tax year is under review and what documentation is required. This may include bank statements, invoices, receipts, contracts, or proof supporting specific deductions.
Next comes the examination stage. This is when the IRS closely reviews your filings. Agents may question deductions, request income verification, or compare expenses against industry norms. For business owners, they may also request access to QuickBooks or other bookkeeping systems.
The final stage is resolution. In some cases, the audit ends with no changes. In others, the IRS proposes adjustments that may result in additional tax, interest, or penalties. Taxpayers typically have the option to respond, negotiate, or appeal these findings.
We once worked with a freelance photographer in Manhattan who was audited for allegedly underreporting several small 1099s. After reviewing his records, we demonstrated that part of the income had already been reported and corrected the remaining discrepancies. What initially appeared to be a $12,000 tax bill was ultimately reduced to under $2,000 through proper representation.
Common Mistakes People Make During an Audit
The biggest mistake we see is trying to handle an audit alone. The IRS is professional, but its role is not to minimize your tax bill. Agents often ask broad questions, and providing too much — or the wrong type of — documentation can unintentionally expand the scope of the review.
Another common mistake is ignoring the notice. Hoping it will go away only makes matters worse. Interest and penalties continue to accrue, and the IRS will eventually escalate the issue.
Some taxpayers also panic and attempt to “fix” issues during the audit by amending prior returns or creating new documentation mid-process. This approach typically raises additional questions and increases scrutiny.
If you are facing an audit and are unsure where to begin, the safest first step is to seek representation. Even a short email to contact@blancpeak.com can connect you with someone who can take control of the situation before it escalates.
How Professional Representation Changes the Outcome
Having a CPA represent you is like having a translator in a foreign country. We speak the IRS’s language and understand what they are really asking for. More importantly, we know what they do not need to see.
Professional representation means:
- All communication goes through your CPA, taking the pressure off you.
- Documents are organized and submitted selectively, keeping the audit focused.
- Penalties and interest can often be reduced through negotiation.
- The scope of the audit can be limited instead of expanding into multiple years.
We worked with a small marketing agency in Queens that faced nearly $30,000 in proposed taxes and penalties. By reviewing their expenses, we showed that many deductions were valid. We also negotiated to reduce penalties, bringing the final liability down to just over $9,000. Without representation, they would likely have paid the full amount.
New York – State and City Audits
Audits in New York are unique because they often come in pairs. You might receive a letter from the IRS and, weeks later, one from the New York State Department of Taxation and Finance. In some cases, New York City itself will also conduct a review.
This means that issues do not stop at the federal level. A deduction questioned by the IRS may also be disallowed by the state. Without coordinated representation, taxpayers can end up repeating the same battle on multiple fronts. A CPA familiar with all three systems ensures consistency and prevents costly contradictions.
Conclusion: Do Not Face an Audit Alone
An IRS audit can be intimidating, but it does not have to be devastating. With the right guidance, many audits end with reduced penalties, corrected records, or no changes at all. The key is not to wait. The earlier you involve a professional, the more control you have over the outcome.
At BlancPeak, we help clients throughout New York navigate audits with confidence. Our role is to protect your interests, minimize costs, and keep the process as stress-free as possible. If you have received a notice or simply want to prepare before it happens, reach out today.
Facing an audit? Let us handle it for you. Contact us at contact@blancpeak.com.
