There are many questions and concerns that pop into a taxpayers mind when they find out that they are being audited. One of the more commonly asked questions is whether or not the IRS can take their house. Yes, the IRS can take a person’s home to collect on unpaid tax bills. This is usually a last resort however, and the taxpayer’s Bill of Rights discourages the IRS from seizing a primary residence. That doesn’t mean however, that if you own rental property or a second home that these properties will not be seized. The IRS can not just take your home though. There are standard procedures that they must go through first. They must obtain a court order, which you can contest. You can also request the Taxpayer Advocate Service to help you in stopping the seizure. Taking someone’s home gathers negative publicity when local news agencies find out. The IRS doesn’t like this kind of image, so a call to the newspaper, TV Station or government officials may be helpful.
Another frequently asked question is if one can make a deal with the IRS to pay less then the total tax bill. This is a possibility though other measures are recommended. If you absolutely want to try this path, start by filing a 656 form, which is an Offer in Compromise. This will open up your finances for thorough investigation before they decide if settling for less than what you owe would be in the best interest of the IRS. Just about half of the offers made are eventually accepted, but notably after negotiations. Rarely will the taxpayer get what he/she originally asked for. In most cases, the IRS will determine an amount that they believe is fair. Generally, contesting the IRS audit will end up with you owing less then the Tax Bill anyways, so sometimes it just pays to contest it from the beginning.
Lastly, people want to know how likely it is that they will be charged with criminal tax fraud. Fewer than 2% of taxpayers are investigated for tax fraud. Additionally, the majority of those prosecuted for tax fraud work in some type of organized crime or are public figures. Being found guilty of tax fraud by your auditor and being criminally charged with it are two different things. Out of the 2% that are investigated for it, the majority ends up paying fines.
Showing posts with label IRS Auditor. Show all posts
Showing posts with label IRS Auditor. Show all posts
Thursday, July 30, 2009
Wednesday, July 29, 2009
Appealing the IRS Audit
When thinking about filing an IRS audit appeal, there are pros and cons though I think you will find that the benefits certainly outweigh the drawbacks. Remember too, that in the majority of the cases, the IRS will still get some of the penalty or fine. It may still be advantageous however, because many times, the tax bill is significantly reduced.
Out of all the research you can do, it boils down to three major reasons why filing an appeal is a “pro”. First of all, filing an appeal is simple and usually costs nothing, unless you enlist the help of a professional, which is not required, though your individual circumstance may warrant such an act. Secondly, appealing the IRS audit will delay your tax bill as long as the appellate process is in still in process. This may buy you the time needed to save or earn the money required to pay off the tax bill or allot you the time needed to make other payment arrangements. Lastly, appealing the decision generally does result in some tax savings. While this is not guaranteed, you don’t have much to lose in the attempt.
On the reverse there are some “cons”. One of the major implications to consider is that the appeals officer may find more issues that the auditor missed. If you know that there are more issues than the one that you are being fined for, and the auditor missed those all together, you will need to decide whether filing for an appeal will be worth it. Try considering which would be of greater value. Since there isn’t any set guarantee or amount, this may be a difficult guess and even a gamble. With that said, the likely hood that the appeals officer will discover more issues is slim. This rarely ever happens. If you feel that you are a candidate for more undiscovered issues to surface, go directly to tax court where the other mistakes will not be looked for or uncovered. If you decide to go straight to tax court, you may want to enlist the help of a professional, which can get expensive as well. Here you will need to consider the savings vs. the cost of such action. On the other hand if you know that you are a candidate for more fines and penalties, you may want that tax attorney anyway.
Additionally, interest will continue to accrue while you are in the appeals process. Again, consider the amount of interest being charged and the amount that you would likely save. Remember that it is not guaranteed, but usually the savings is around 50%. Figure the savings at only 20% just to be on the safe side while thinking through your options.
Out of all the research you can do, it boils down to three major reasons why filing an appeal is a “pro”. First of all, filing an appeal is simple and usually costs nothing, unless you enlist the help of a professional, which is not required, though your individual circumstance may warrant such an act. Secondly, appealing the IRS audit will delay your tax bill as long as the appellate process is in still in process. This may buy you the time needed to save or earn the money required to pay off the tax bill or allot you the time needed to make other payment arrangements. Lastly, appealing the decision generally does result in some tax savings. While this is not guaranteed, you don’t have much to lose in the attempt.
On the reverse there are some “cons”. One of the major implications to consider is that the appeals officer may find more issues that the auditor missed. If you know that there are more issues than the one that you are being fined for, and the auditor missed those all together, you will need to decide whether filing for an appeal will be worth it. Try considering which would be of greater value. Since there isn’t any set guarantee or amount, this may be a difficult guess and even a gamble. With that said, the likely hood that the appeals officer will discover more issues is slim. This rarely ever happens. If you feel that you are a candidate for more undiscovered issues to surface, go directly to tax court where the other mistakes will not be looked for or uncovered. If you decide to go straight to tax court, you may want to enlist the help of a professional, which can get expensive as well. Here you will need to consider the savings vs. the cost of such action. On the other hand if you know that you are a candidate for more fines and penalties, you may want that tax attorney anyway.
Additionally, interest will continue to accrue while you are in the appeals process. Again, consider the amount of interest being charged and the amount that you would likely save. Remember that it is not guaranteed, but usually the savings is around 50%. Figure the savings at only 20% just to be on the safe side while thinking through your options.
Understanding the Different between an IRS Tax Audit, IRS Lein and Fraud
The Internal Revenue Service has been a powerful government entity for many years in the United States and one that is not usually reckoned. Results are rarely in the favor of the citizen. It is a frightening and stressful time because so many outcomes are possible. From jail time to house seizures, the IRS has very few limits as far as what is allowable by law to punish and collect from offenders.
If you have intentionally defrauded the IRS through false reporting or non-filing, this is handled very seriously. Tax crimes can result in high fines and even prison time. IRS Audits have went down in recent years, due to a computer program that uses an undetermined formula to randomly choose the filings that provide the IRS the largest penalties, which boosts the revenue amount for the IRS. With that said, if you are among the 1 in about 200 people that get audited every year, you may want to be a bit apprehensive. Out of those audited, 1 in 5 get away without a fine or owing anything, but the other 4 in 5 can get severe punishments, jail time and serious collection methods can be levied.
When a taxpayer is found to be deceitful during an IRS audit, the auditor will try to determine if this is intentional. If the taxpayer purposefully defrauded the IRS, it becomes tax fraud. Once this is discovered and the amount of the fine or tax bill is determined, the IRS gives the individual a certain amount of time to pay the bill off. If the person can not afford to pay the bill off or simply fails to do so, the IRS may place a lien on your credit and against you. On a lien, you are usually given 10 years to pay back the total amount owed.
While a lien isn't paid, if the back due amount escalates to a levy, this could mean certain trouble for the taxpayer, though this is a last resort used by the IRS. Once you are levied, you have 45 days to pay the total tax bill. If you still fail to comply then any property you own can be taken. If you are at or near this point, it is strongly recommended that you retain professional help such as a tax attorney and/or a tax advisor for help.
Avoiding the audit all together is ideal, but once you have exhausted the entire IRS audit process including court, it is advisable to pay up, get help or understand that life as you knew it will not be the same.
If you have intentionally defrauded the IRS through false reporting or non-filing, this is handled very seriously. Tax crimes can result in high fines and even prison time. IRS Audits have went down in recent years, due to a computer program that uses an undetermined formula to randomly choose the filings that provide the IRS the largest penalties, which boosts the revenue amount for the IRS. With that said, if you are among the 1 in about 200 people that get audited every year, you may want to be a bit apprehensive. Out of those audited, 1 in 5 get away without a fine or owing anything, but the other 4 in 5 can get severe punishments, jail time and serious collection methods can be levied.
When a taxpayer is found to be deceitful during an IRS audit, the auditor will try to determine if this is intentional. If the taxpayer purposefully defrauded the IRS, it becomes tax fraud. Once this is discovered and the amount of the fine or tax bill is determined, the IRS gives the individual a certain amount of time to pay the bill off. If the person can not afford to pay the bill off or simply fails to do so, the IRS may place a lien on your credit and against you. On a lien, you are usually given 10 years to pay back the total amount owed.
While a lien isn't paid, if the back due amount escalates to a levy, this could mean certain trouble for the taxpayer, though this is a last resort used by the IRS. Once you are levied, you have 45 days to pay the total tax bill. If you still fail to comply then any property you own can be taken. If you are at or near this point, it is strongly recommended that you retain professional help such as a tax attorney and/or a tax advisor for help.
Avoiding the audit all together is ideal, but once you have exhausted the entire IRS audit process including court, it is advisable to pay up, get help or understand that life as you knew it will not be the same.
How to Appeal and IRS Audit
After the IRS has completed their audit report, you will be given a certain amount of time to pay the tax bill. If you decide to appeal the results, the collection of your tax bill will be delayed for a long period of time; sometimes months and possibly even years. That is one of the reasons that utilizing the appealing process may work to your benefit. If you do not have the funds to pay the bill right away, file for a free appeals hearing. If that doesn’t work or you still don’t have enough money, then you can take the decision to tax court.
Appealing the audit may reduce your total tax liability, though it rarely reverses the audit report in it’s entirety. The first step is to appeal the decision with the IRS. Send a certified letter to the IRS stating that you wish to appeal the report. The appeals office will send an independent agent who is separate from the department who handled your audit.
The appeals department does not want you to take this matter to tax court. They would prefer to settle the matter themselves. Write a letter and send it to the local IRS director, stating why you are appealing it, and what your intentions are. Prepare your documents, organize them carefully and be sure that you understand exactly what is going on as well as what they are asking for and why you are appealing the IRS audit report. When you appeal, make a Freedom of Information Act Request. This entitles you to the auditor’s records, allowing you to see what they see. This will give you a better position when you go in to talk with the appeals agent.
As long as you are well prepared and you have done thorough research, you should be able to complete the entire appeals process on your own without hiring a professional. It is recommended however, that once you feel you understand all of the report as well as the appeals process and requests that you have a consultation with a tax consultant. This meeting should take place prior to meeting with the appeals officer. This may point out a few things you didn’t discover in your research stage or offer needed tips that you wouldn’t have otherwise known. This is a cheaper alternative than hiring a professional to handle the entire ordeal or even a tax attorney for court litigation.
In order to be offered a settlement, you must show the appeals officer that you would have some chance of winning or reducing your tax bill in tax court. This is why preparation and understanding is so important in this step of the appeals process.
Appealing the audit may reduce your total tax liability, though it rarely reverses the audit report in it’s entirety. The first step is to appeal the decision with the IRS. Send a certified letter to the IRS stating that you wish to appeal the report. The appeals office will send an independent agent who is separate from the department who handled your audit.
The appeals department does not want you to take this matter to tax court. They would prefer to settle the matter themselves. Write a letter and send it to the local IRS director, stating why you are appealing it, and what your intentions are. Prepare your documents, organize them carefully and be sure that you understand exactly what is going on as well as what they are asking for and why you are appealing the IRS audit report. When you appeal, make a Freedom of Information Act Request. This entitles you to the auditor’s records, allowing you to see what they see. This will give you a better position when you go in to talk with the appeals agent.
As long as you are well prepared and you have done thorough research, you should be able to complete the entire appeals process on your own without hiring a professional. It is recommended however, that once you feel you understand all of the report as well as the appeals process and requests that you have a consultation with a tax consultant. This meeting should take place prior to meeting with the appeals officer. This may point out a few things you didn’t discover in your research stage or offer needed tips that you wouldn’t have otherwise known. This is a cheaper alternative than hiring a professional to handle the entire ordeal or even a tax attorney for court litigation.
In order to be offered a settlement, you must show the appeals officer that you would have some chance of winning or reducing your tax bill in tax court. This is why preparation and understanding is so important in this step of the appeals process.
What to Expect during an IRS Audit
During an IRS audit, the auditor is going to be looking for a number of items that will prove or disprove your filing. The auditor may look at your bank accounts as well as other personal records to determine if you have committed tax fraud or have filing discrepancies.
The IRS auditor will want to know if you reported all of your business sales and receipts. They will be looking for bank records to support the income amount reported. The auditor may look for large sum deposits, then ask for documentation from the month that the deposit happened in. Additionally, they are going to be suspect to any cash transactions, especially the larger ones. For sales purposes, the IRS auditor can even judge your lifestyle to see if you’re living beyond the means of the self-employment or business income that you have reported. If this is the case, they may ask how you are affording pperhaps a $6,000 monthly mortgage when your total sales per month are only $2,000. Be prepared to rebut this assumption with credit card receipts, spousal income or other possible explanations. Remember however, that money gifted to you may sometimes be required to be reported as income. Winnings are sometimes required to be reported as well. For this reason, it is not recommended that you allow the IRS auditor to visit with you at your home or office.
Additional questions that you may be asked or that the IRS auditor may be looking for is whether or not you claimed expenses for travel that were not business related. Additionally, the IRS auditor may be looking to see if you claimed personal living expenses as business or home office expenses, if you claimed large and extravagant entertainment expenses, if you properly made payroll tax deposits and if your workers are properly classified such as independent contractors or w-2 employees.
As long as you are prepared to produce the documents and you volunteer anything in question, you should be okay. Take your time to digest the requests, and then think strategy. The goal is to prove that what you stated is fact. Show the IRS auditor why the expense was for the business or why the employee is classified the way they are. Make sure that you are educated about the topic before offering or volunteering any information. Research the subject or get some advice from a tax professional if needed. Request more time if you need to comprehend what is being asked for and to gather the documentation to support your return.
The IRS auditor will want to know if you reported all of your business sales and receipts. They will be looking for bank records to support the income amount reported. The auditor may look for large sum deposits, then ask for documentation from the month that the deposit happened in. Additionally, they are going to be suspect to any cash transactions, especially the larger ones. For sales purposes, the IRS auditor can even judge your lifestyle to see if you’re living beyond the means of the self-employment or business income that you have reported. If this is the case, they may ask how you are affording pperhaps a $6,000 monthly mortgage when your total sales per month are only $2,000. Be prepared to rebut this assumption with credit card receipts, spousal income or other possible explanations. Remember however, that money gifted to you may sometimes be required to be reported as income. Winnings are sometimes required to be reported as well. For this reason, it is not recommended that you allow the IRS auditor to visit with you at your home or office.
Additional questions that you may be asked or that the IRS auditor may be looking for is whether or not you claimed expenses for travel that were not business related. Additionally, the IRS auditor may be looking to see if you claimed personal living expenses as business or home office expenses, if you claimed large and extravagant entertainment expenses, if you properly made payroll tax deposits and if your workers are properly classified such as independent contractors or w-2 employees.
As long as you are prepared to produce the documents and you volunteer anything in question, you should be okay. Take your time to digest the requests, and then think strategy. The goal is to prove that what you stated is fact. Show the IRS auditor why the expense was for the business or why the employee is classified the way they are. Make sure that you are educated about the topic before offering or volunteering any information. Research the subject or get some advice from a tax professional if needed. Request more time if you need to comprehend what is being asked for and to gather the documentation to support your return.
How to survive an IRS Audit
An IRS audit happens randomly, but when it does, being prepared is the best way to combat getting any fines or penalties for your returns. Be very nice to your auditor and think as if you are writing an argumentative or debate paper for college. Your goal is to convince the auditor that you stated all of your income and that all of your adjustments, credits and write-off’s were legitimate and correct. Document everything that you say or do for the IRS auditor. When possible put any correspondence in writing. Only answer for the items in question. Do not volunteer more information than needed. Do not bring or produce any other documents than what is being asked for. Keep your conversation limited, only answering the questions that are being asked by your IRS auditor.
Requesting more time is generally advantageous to you. Postpone the appointments when possible. Don’t overdue it to the point where it looks as if you are non-compliant, but take your time. You shouldn’t feel rushed or act in haste; that is when mistakes happen. Request time to retrieve your records or if extenuating circumstances have presented themselves.
Always select an outise meeting place to conduct field audits. Do not invite your auditor into your home or office. Go to the IRS or perhaps choose a restaurant to meet at. If you feel you are being pressured into having them at your place of business or even in your home, contact the auditor’s supervisor or have your tax professional handle it. If you have a tax professional, suggest meeting at their office if possible.
If the auditor is requesting documents that you do not have or cannot find, you are allowed to re-construct documents. Do not forge anything, simply reconstruct the original amount and other information as applicable.
It would be unreasonable to assume that you aren’t going to get fined or owe the IRS something after an IRS audit. The key is to negotiate the tax issues themselves with the auditor. Do not try to explain why you can’t pay that amount or compromise on the dollar amount. Additionally, you should never use the term unfair or compain about fairness in general. The tax issues themselves are the only things that should ever be negotiated or discussed.
You should always be well advised and educated on the tax law when dealing with the IRS. Look up information, read books etc. If you are still confused, contact a professional to help.
Requesting more time is generally advantageous to you. Postpone the appointments when possible. Don’t overdue it to the point where it looks as if you are non-compliant, but take your time. You shouldn’t feel rushed or act in haste; that is when mistakes happen. Request time to retrieve your records or if extenuating circumstances have presented themselves.
Always select an outise meeting place to conduct field audits. Do not invite your auditor into your home or office. Go to the IRS or perhaps choose a restaurant to meet at. If you feel you are being pressured into having them at your place of business or even in your home, contact the auditor’s supervisor or have your tax professional handle it. If you have a tax professional, suggest meeting at their office if possible.
If the auditor is requesting documents that you do not have or cannot find, you are allowed to re-construct documents. Do not forge anything, simply reconstruct the original amount and other information as applicable.
It would be unreasonable to assume that you aren’t going to get fined or owe the IRS something after an IRS audit. The key is to negotiate the tax issues themselves with the auditor. Do not try to explain why you can’t pay that amount or compromise on the dollar amount. Additionally, you should never use the term unfair or compain about fairness in general. The tax issues themselves are the only things that should ever be negotiated or discussed.
You should always be well advised and educated on the tax law when dealing with the IRS. Look up information, read books etc. If you are still confused, contact a professional to help.
What to do after you recieve your IRS Audit Report
Once your IRS audit is complete, you will recieve a report. It is important that you take your time, read through the report carefully and if you don’t understand it, contact your auditor. Now that you understand it, you still may not agree with it. If you don’t agree with the IRS report, there are some actions that you can take to appeal the IRS’ decision. First, send a protest letter to the IRS within 30 days of the receipt of the IRS Audit report. While you can use standard first class mail, I would recommend sending yout protest letter by certified mail so that you have proof that they have received it. The certified letter should require a signature, avoiding later concerns that your letter for an appeals hearing is being requested too late. Once you request an appeals hearing, one will be granted with an appeals officer supposedly unbiased and from a different division of the IRS. This officer is not a part of the office that originally conducted your IRS audit.
If you meet with the officer, and still do not agree with the outcome, other steps can be taken to have your side heard. You can file a petition in tax court, which is fairly inexpensive and not that difficult. You can find helpful resources online that can aid you during this process. While you can file a petition on your own, it is only suggested to act on your own behalf if your tax bill is less than $50,000. If your tax liability if over that amount, it would be worth your investment to seek the advice of a tax attorney.
Generally, contesting your audit in court will be beneficial to your case. If you are being unjustly charged, your case can be heard. Notably however, you may save money and time by simply appealing the decision. About half of the people who file a petition in tax court end up paying a reduced penalty. While there are no guarantees, it is at least worth a shot. Reducing your tax bill, filled with fees and penalties, by only 10% can add up to significant savings. Weigh your options. The amount of time that your case will take may be excessive for the amount owed. Determine if tax court in the right decision. If tax court fails, I am sorry to report, that there is little you can do other than seek advice from a tax advisor and/or attorney. At this point you have exhausted your last method, tax court, so there may not be anything either of those professionals could do either. With that said, it is important that you follow each step of the appeals process to exhaust every avenue. With a little bit of luck, as well as a lot of time and research, you can save thousands of dollars depending on how much you actually owe.
If you meet with the officer, and still do not agree with the outcome, other steps can be taken to have your side heard. You can file a petition in tax court, which is fairly inexpensive and not that difficult. You can find helpful resources online that can aid you during this process. While you can file a petition on your own, it is only suggested to act on your own behalf if your tax bill is less than $50,000. If your tax liability if over that amount, it would be worth your investment to seek the advice of a tax attorney.
Generally, contesting your audit in court will be beneficial to your case. If you are being unjustly charged, your case can be heard. Notably however, you may save money and time by simply appealing the decision. About half of the people who file a petition in tax court end up paying a reduced penalty. While there are no guarantees, it is at least worth a shot. Reducing your tax bill, filled with fees and penalties, by only 10% can add up to significant savings. Weigh your options. The amount of time that your case will take may be excessive for the amount owed. Determine if tax court in the right decision. If tax court fails, I am sorry to report, that there is little you can do other than seek advice from a tax advisor and/or attorney. At this point you have exhausted your last method, tax court, so there may not be anything either of those professionals could do either. With that said, it is important that you follow each step of the appeals process to exhaust every avenue. With a little bit of luck, as well as a lot of time and research, you can save thousands of dollars depending on how much you actually owe.
How to get through your IRS Audit
An IRS Audit is a stressful time full of tension. Your emotions feel tense and like a roller coaster. At the same time, the auditors deal with dishonest and hostile citizens everyday. While you may feel that an auditor is playing superior because they have limited authority over you at the moment, there are some steps that can be taken to avoid a conflict which isn’t in anyone’s best interest. Additionally, you need to remember the position of the auditor and perhaps why he is expressing himself the way he is.
IRS auditors aren’t generally high paid employees, and their work environments can be stressful since they are dealing with defensive and hostile people everyday. IRS auditors are on deadlines and many times simply finding the person for the audit is diffilcult, causing even more delays, which quickly adds to their caseload. Their goal is to get your case closed out as quickly as possible. Since they are underpaid and deal with other’s attitudes all day, you should expect their morale to be rather low.
With that said, there are ways to alleviate some of the challenge. First, don’t get angry or upset. Try to talk reasonably and logically with your auditor. Explain that you want to get along and assist them with getting this case closed. In the auditors mind, you are the enemy. Try changing that so that you are more a friend than a foe, helping them through they’re mundane and underpaid 9-5 workday.
If that attempt fails, speak kindly to the agent’s supervisor, asking to resolve the issue. Be polite and explanatory. It is the supervisor’s job, just as much as it is the auditor’s, to close the account. If the supervisor sees that you are attempting to work with them to get the case closed, the hostilities should end.
If you are dealing with an aggressive or dishonest IRS auditor, then certainly contact the chief inspector at 800-366-4484 or write to P.O. Box 589, Benjamin Franklin Station, Washington, DC 20044-0589. This is not an interactive investigation however, and you will not be informed of the outcome. While it is rare, some auditors may imply that favors could get rid of your problem. Report this right away, as it is bribery and will do nothing for your position. Either way, your best form of action is to try and assist the auditor in getting your case closed as soon as possible so that you can move on with your life and the pesky auditor will be gone.
IRS auditors aren’t generally high paid employees, and their work environments can be stressful since they are dealing with defensive and hostile people everyday. IRS auditors are on deadlines and many times simply finding the person for the audit is diffilcult, causing even more delays, which quickly adds to their caseload. Their goal is to get your case closed out as quickly as possible. Since they are underpaid and deal with other’s attitudes all day, you should expect their morale to be rather low.
With that said, there are ways to alleviate some of the challenge. First, don’t get angry or upset. Try to talk reasonably and logically with your auditor. Explain that you want to get along and assist them with getting this case closed. In the auditors mind, you are the enemy. Try changing that so that you are more a friend than a foe, helping them through they’re mundane and underpaid 9-5 workday.
If that attempt fails, speak kindly to the agent’s supervisor, asking to resolve the issue. Be polite and explanatory. It is the supervisor’s job, just as much as it is the auditor’s, to close the account. If the supervisor sees that you are attempting to work with them to get the case closed, the hostilities should end.
If you are dealing with an aggressive or dishonest IRS auditor, then certainly contact the chief inspector at 800-366-4484 or write to P.O. Box 589, Benjamin Franklin Station, Washington, DC 20044-0589. This is not an interactive investigation however, and you will not be informed of the outcome. While it is rare, some auditors may imply that favors could get rid of your problem. Report this right away, as it is bribery and will do nothing for your position. Either way, your best form of action is to try and assist the auditor in getting your case closed as soon as possible so that you can move on with your life and the pesky auditor will be gone.
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