Out of all the meetings that you have had with the IRS so far, by far the most important to your bottom line may be the closing conference. This is generally performed when you have been part of an IRS field audit. At the closing conference, you can expect for the auditor to present the IRS’ side, and the conclusions from the audit. Additionally, the auditor will likely have a report of any changes that are required to be made to your tax return along with the penalties and interest that are now due. The report will also contain more important information for later research, such as Internal Revenue Code and other legal resources that support the proposed claim.
Do not feel pressured to agree or sign anything on the day of the conference. If you do not understand something in the report, or if you feel it is incorrect or unfair, request more time from the auditor. It is common for someone who is representing him or herself, to request additional time in order to confer with a professional. You may want to set up a second meeting with the auditor. Now that you have the report in hand, your audit team has time to review, research and prepare calculations, discrepancies, questionable issues or arguments on your behalf.
Even after all that work, an audit team and a second meeting to discuss what your audit team found, you may not be able to reach an agreement with the auditor. Don’t get upset, this happens. Since tax laws are complicated and subject to interpretation, there are appellate processes and tax courts that may see things from your point of view. Speak as little as possible, but be polite and straightforward. Inform the auditor that you and/or your company may want to exercise it’s right to an appeal and/or to tax court. End the meeting on good terms and even shake hands.
Remember that it is not the IRS’ job to make your life difficult. It is their job to enforce the code that makes each of us responsible for taxes equally. There position’s makes the tax code fair and even across the board. Simply cooperate the best you can and if you cannot come to an agreement, simply appeal it. While this may be easier said than done, it is worth trying and may prevent a headache in the meantime.
Showing posts with label IRS. Show all posts
Showing posts with label IRS. Show all posts
Wednesday, August 5, 2009
Bill of Rights during an IRS Audit
It used to be that the IRS had a final say and a lot of rights when it came to the power over the U.S. Taxpayers. Today however, the rights of taxpayers have been increased through the Taxpayer Bill of Rights. The first act was instituted in 1989 and the second was enacted in 1996. The last of the three was implemented in 1998. While it has always been an expectation that the IRS would deal with taxpayers in a professional manner, they must now also follow another set of code of conduct policies.
Remember the following information and certainly appeal or complain if the IRS does not follow these guidelines.
While this is an abbreviated overview of the IRS tax payer's Bill of Rights, many of them can help and possibly prevent you from owing the IRS an enormous amount of penalties and fines after the IRS Audit. It is important that every citizen get treated fairly and equally. It is important that you always know your rights when dealing with an IRS Audit.
Remember the following information and certainly appeal or complain if the IRS does not follow these guidelines.
- First, the IRS must give you the tax information and any help that you need in order to comply with the IRS tax laws.
- The IRS must always ensure your personal and financial confidentiality.
- They must treat you in a courteous manner.
- The IRS must provide clear explanations in any tax notice or mail inquiries and provide additional information as requested.
- A non-technical statement of your taxpayer rights and information pertaining to the IRS collection and tax appeals procedures is required to be placed in all correspondence during an IRS audit.
- The IRS must collect the tax fairly. If the IRS threatens to collect in a manner that will cause you significant hardship, you can apply for a Taxpayer Assistance Order by filing IRS tax form 911 with an IRS Problem Resolution Office in the IRS district where you live. While your filed 911 form is being reviewed, the tax collections and enforcements will be suspended.
- The IRS must agree to a (3) year installment payment schedule if the taxpayer owes $10,000 or less, exclusive of interest and penalties if requested and certain conditions are met.
- Approval from a supervisor must be acquired before the IRS can file a tax lien or levy and the IRS must provide notice, which includes the amount of tax owed, the IRS’ proposed action, and notify the taxpayer of their right to a hearing within (30) days within (5) business days of such action. The tax notice must also include the IRS levy procedures, the availability of IRS administrative appeals, the IRS appeals procedures, and the alternatives to the proposed tax levy such as an installment agreement and the rules for obtaining a release of the tax lien.
- Certain properties are exempt from IRS seizure under the taxpayers Bill of Rights.
- Legal costs may be recovered if you win in court against the IRS and the burden of proof may shift to the IRS during court procedures with respect to factual issues relevant to determining tax liability. The IRS must also issue a tax refund of overpaid tax and must provide at least 30 days notice prior to altering, modifying or terminating and installment agreement.
While this is an abbreviated overview of the IRS tax payer's Bill of Rights, many of them can help and possibly prevent you from owing the IRS an enormous amount of penalties and fines after the IRS Audit. It is important that every citizen get treated fairly and equally. It is important that you always know your rights when dealing with an IRS Audit.
Preparing for an IRS Audit
When preparing for an IRS audit the key is to not be scared or act in haste. Read over all documents thoroughly, do some research and then begin to prepare. Familiarize yourself with what type of audit you are going through, what the IRS is requesting and why you filed the way you did. If you are unclear about anything, contact an accountant, attorney or anyone else who is registered to practice in tax court.
There are some common courses of action, which the average taxpayer is unaware of. First, you can tape record your audit meeting, but you have to notify the IRS within ten days of the tax audit meeting. Another item that you will want to educate yourself about is the ability to appeal the decisions, such as tax liens, tax levies and property seizures. Perhaps the IRS is lacking crucial information pertaining to your case, or maybe you are eligible for hardship relief.
While it isn’t necessary to appoint an accountant or registered agent, if you do enlist the help of a professional, you should give them “power of attorney”. This could be to your advantage because you wouldn’t be required to be at the meeting unless subpoenaed by the IRS. If this is the case, your registered agent can stall the process by needing to confer with you on some issues since you are not required to be present. This gives you the upper hand by giving you time to rebut the claim without being placed "on the spot".
Generally, the IRS tax audit notice will provide you with details on which part of the return is being questioned. Only provide that amount of information to the IRS. Do not volunteer or provide more documentation that what is being asked for. A simple measure, but one that many people overlook is making certain that the documentation is in the order of the request. For example, perhaps the IRS wants receipts for itemized deductions A, B and C, and they want copies of your bank statements for all of 2007. When preparing your file for your face-to-face audit, have copies, not originals, in the order of the request. Have on top the receipts for itemized deduction A, B and C labeled as such. Then follow that with copies of you bank statements from January through December in order. Paper clip those together with your request letter on the top. Appearing disorganized to an auditor will be to your detriment. The auditor will assume that your business is handled in an unorganized fashion and may feel that more mistakes may be found, which will result in higher tax penalties benefiting the IRS. The auditor may then extend the scope of the investigation. While many of the actions that you will take to combat the IRS audit, each are of high importance and can greatly affect the results. Take your time and be prepared.
There are some common courses of action, which the average taxpayer is unaware of. First, you can tape record your audit meeting, but you have to notify the IRS within ten days of the tax audit meeting. Another item that you will want to educate yourself about is the ability to appeal the decisions, such as tax liens, tax levies and property seizures. Perhaps the IRS is lacking crucial information pertaining to your case, or maybe you are eligible for hardship relief.
While it isn’t necessary to appoint an accountant or registered agent, if you do enlist the help of a professional, you should give them “power of attorney”. This could be to your advantage because you wouldn’t be required to be at the meeting unless subpoenaed by the IRS. If this is the case, your registered agent can stall the process by needing to confer with you on some issues since you are not required to be present. This gives you the upper hand by giving you time to rebut the claim without being placed "on the spot".
Generally, the IRS tax audit notice will provide you with details on which part of the return is being questioned. Only provide that amount of information to the IRS. Do not volunteer or provide more documentation that what is being asked for. A simple measure, but one that many people overlook is making certain that the documentation is in the order of the request. For example, perhaps the IRS wants receipts for itemized deductions A, B and C, and they want copies of your bank statements for all of 2007. When preparing your file for your face-to-face audit, have copies, not originals, in the order of the request. Have on top the receipts for itemized deduction A, B and C labeled as such. Then follow that with copies of you bank statements from January through December in order. Paper clip those together with your request letter on the top. Appearing disorganized to an auditor will be to your detriment. The auditor will assume that your business is handled in an unorganized fashion and may feel that more mistakes may be found, which will result in higher tax penalties benefiting the IRS. The auditor may then extend the scope of the investigation. While many of the actions that you will take to combat the IRS audit, each are of high importance and can greatly affect the results. Take your time and be prepared.
Ways to get your IRS Audit Penalty Dismissed
If you asked the IRS for tax advice, and the advice that you recieved resulted in an audit, then you may not have the tax penalty any longer. They key will be to provide accurate tax information when the IRS asks for it and show proof that you received erroneous advice.
While it is our responsibility to be informed before filing our tax return, even if we need to seek the advice of a professional, if you have made an honest mistake you may be able to have the penalty dropped. In order for this to be successful, you would need to send the IRS a check for payment of the tax and interest due, along with a letter explaining how the mistake happened. Also, ask to have the penalty eliminated. If the explanation is clear and it is easy to understand how this could be an honest mistake, the IRS may relieve you of the penalty.
There are other ways that you can avoid a tax penalty. For example, you can show that you had substantial authority for the treatment of a given tax item. To show the substantial authority some research may be needed. Research the Internal Revenue Bulletin, Court Cases, Private Letter Rulings issued by the IRS and congressional reports. Once you have found a document pertaining to your situation, and making sure that is supports your position. Be sure that the documentations that you use has substantial relation to the weight of authorities supporting the opposite tax treatment. You can then submit the documentation to the IRS along with a letter as to why you took the position you did and how your documentation reflects your situation.
You can always appeal the IRS’s decision along with taking their decision to tax court. You have the right to representation. Additionally, the period of time while you are appealing the decision your penalty will be suspended until the ruling on your case. The tax penalty for filing a fake tax return is not based on your liability and will be assessed immediately and added to any other penalties incurred.
Staying informed, conducting research and seeking advice is the best way to combat an IRS audit after it happens. Being as truthful and forthcoming as possible will aid you in the process but with caution to not provide the IRS with any more information than needed. From a letter, to some research, all the way to tax court, you have the right and the opportunity to have your case heard and ruled on by an independent party.
While it is our responsibility to be informed before filing our tax return, even if we need to seek the advice of a professional, if you have made an honest mistake you may be able to have the penalty dropped. In order for this to be successful, you would need to send the IRS a check for payment of the tax and interest due, along with a letter explaining how the mistake happened. Also, ask to have the penalty eliminated. If the explanation is clear and it is easy to understand how this could be an honest mistake, the IRS may relieve you of the penalty.
There are other ways that you can avoid a tax penalty. For example, you can show that you had substantial authority for the treatment of a given tax item. To show the substantial authority some research may be needed. Research the Internal Revenue Bulletin, Court Cases, Private Letter Rulings issued by the IRS and congressional reports. Once you have found a document pertaining to your situation, and making sure that is supports your position. Be sure that the documentations that you use has substantial relation to the weight of authorities supporting the opposite tax treatment. You can then submit the documentation to the IRS along with a letter as to why you took the position you did and how your documentation reflects your situation.
You can always appeal the IRS’s decision along with taking their decision to tax court. You have the right to representation. Additionally, the period of time while you are appealing the decision your penalty will be suspended until the ruling on your case. The tax penalty for filing a fake tax return is not based on your liability and will be assessed immediately and added to any other penalties incurred.
Staying informed, conducting research and seeking advice is the best way to combat an IRS audit after it happens. Being as truthful and forthcoming as possible will aid you in the process but with caution to not provide the IRS with any more information than needed. From a letter, to some research, all the way to tax court, you have the right and the opportunity to have your case heard and ruled on by an independent party.
Sunday, August 2, 2009
How Large Deducitons Play into IRS Audits
If you anticipate claiming large deductions, there is nothing wrong with that as long as you have the receipts to prove it. If your tax deductions exceed the average amount of deductions for your income level, then you may get audited. Additionally, if you have an excessive amount of itemized deductions, you may fall into a high-risk category therefore raising your chances of getting audited. While the formula used is secret, we do know that a large amount of Itemized Deductions places you in the higher probability category.
When you file your return with the IRS, a secret computer score, known as the Discriminate Information Function (DIF), is immediately used to determine whether additional taxes, fees, penalties or fines could be collected. If the DIF score returns high, you are more likely to receive an audit.
An area that most taxpayers don’t even think about as being a high-risk error in reporting, that may get them audited, is the failure to report alimony as income. When a former spouse pays the alimony, they claim it on their taxes. Likewise, you should also claim it as income. Failure to do so will result in a high-risk score, and we know what that means by now. Since the other party generally reports it, catching such errors is relatively easy.
The IRS doesn’t usually just pick taxpayers to audit. Since the IRS has little resources and to boot, they are understaffed, choosing returns that will yield the highest rate of return in the way of fines and penalties is essential. The IRS has budgets and expenses, like any other business; therefore they must cover their expenses without passing the costs of doing so on. There is a fine balance between not allowing people to get away with underpayments, which would bankrupt our system, but on the other hand not spend the taxpayer’s money frivolously. This is why the IRS has the computer system and formula available to them, to ensure that they are auditing cheating taxpayers where money is available. While it may not be ideal, an audit may be scary, and it certainly isn’t pleasant, if the IRS did not put in place checks and balances imagine what that would do to our taxes. Our individual taxes would continue to rise until the system would entirely break, leaving the taxpayers without the common things everyday that we take advantage of paid for by tax dollars. No one would be afraid of the repercussions of being dishonest on their tax returns, and very little would pay.
When you file your return with the IRS, a secret computer score, known as the Discriminate Information Function (DIF), is immediately used to determine whether additional taxes, fees, penalties or fines could be collected. If the DIF score returns high, you are more likely to receive an audit.
An area that most taxpayers don’t even think about as being a high-risk error in reporting, that may get them audited, is the failure to report alimony as income. When a former spouse pays the alimony, they claim it on their taxes. Likewise, you should also claim it as income. Failure to do so will result in a high-risk score, and we know what that means by now. Since the other party generally reports it, catching such errors is relatively easy.
The IRS doesn’t usually just pick taxpayers to audit. Since the IRS has little resources and to boot, they are understaffed, choosing returns that will yield the highest rate of return in the way of fines and penalties is essential. The IRS has budgets and expenses, like any other business; therefore they must cover their expenses without passing the costs of doing so on. There is a fine balance between not allowing people to get away with underpayments, which would bankrupt our system, but on the other hand not spend the taxpayer’s money frivolously. This is why the IRS has the computer system and formula available to them, to ensure that they are auditing cheating taxpayers where money is available. While it may not be ideal, an audit may be scary, and it certainly isn’t pleasant, if the IRS did not put in place checks and balances imagine what that would do to our taxes. Our individual taxes would continue to rise until the system would entirely break, leaving the taxpayers without the common things everyday that we take advantage of paid for by tax dollars. No one would be afraid of the repercussions of being dishonest on their tax returns, and very little would pay.
Wednesday, July 29, 2009
Types of IRS Audits
There are four different types of IRS audits. While none of them are pleasurable, there are notable differences. Each type of audit is unique in the way it is handled. Additionally, each type of audit is specifically aimed toward a select group of taxpayers being audited.
The first type of audit is a correspondence audit. You will receive a letter from the IRS requesting that you provide certain documentation in order to verify information that you have stated on your return. This information is to be sent back via the mail service and no in person meeting is required. This type of audit usually happens to individuals and is not geared towards complex tax returns or business entities.
The second type, an office audit, is where the IRS sends a letter requesting that either you or your representative bring certain documentation to the local IRS office. This type of audit usually applies to small business or sole proprietorships where sales are less than $500,000. In an office audit, a local auditor will examine the documentation produced.
The third type of IRS audit is the field audit. This audit usually happens to incorporations and partnerships. The IRS auditor will call the owner, partner or agent, inform them that they have been selected for an audit and set up an appointment to meet in person. This type of audit is called a field audit because the auditor will want to meet at your home or place of business. Inviting an auditor into your home or place of business is discouraged whenever possible. Try to arrange the meeting at your tax advisor’s office or other professional agent that you use. The auditor will want to interview the principals of the business and determine where your records are located. It is strongly recommended that you obtain representation if you receive a field audit, as this is usually a “fishing expedition”.
The last type of audit is a Taxpayer Compliance Measurement Program audit. This is used to update the scoring program the IRS uses to select future audits. You business will be audited on every line item and this is very time consuming. Records, invoices, checks, time cards and receipts will have to be produced. In a TCMP audit, a full audit is conducted, and every piece of documentation must be produced.
The first type of audit is a correspondence audit. You will receive a letter from the IRS requesting that you provide certain documentation in order to verify information that you have stated on your return. This information is to be sent back via the mail service and no in person meeting is required. This type of audit usually happens to individuals and is not geared towards complex tax returns or business entities.
The second type, an office audit, is where the IRS sends a letter requesting that either you or your representative bring certain documentation to the local IRS office. This type of audit usually applies to small business or sole proprietorships where sales are less than $500,000. In an office audit, a local auditor will examine the documentation produced.
The third type of IRS audit is the field audit. This audit usually happens to incorporations and partnerships. The IRS auditor will call the owner, partner or agent, inform them that they have been selected for an audit and set up an appointment to meet in person. This type of audit is called a field audit because the auditor will want to meet at your home or place of business. Inviting an auditor into your home or place of business is discouraged whenever possible. Try to arrange the meeting at your tax advisor’s office or other professional agent that you use. The auditor will want to interview the principals of the business and determine where your records are located. It is strongly recommended that you obtain representation if you receive a field audit, as this is usually a “fishing expedition”.
The last type of audit is a Taxpayer Compliance Measurement Program audit. This is used to update the scoring program the IRS uses to select future audits. You business will be audited on every line item and this is very time consuming. Records, invoices, checks, time cards and receipts will have to be produced. In a TCMP audit, a full audit is conducted, and every piece of documentation must be produced.
Subscribe to:
Posts (Atom)
