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.
Showing posts with label Internal Revenue Service Extension. Show all posts
Showing posts with label Internal Revenue Service Extension. Show all posts
Wednesday, August 5, 2009
Wednesday, July 29, 2009
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.
Should I follow-up with the IRS Auditor if I haven't Heard from them in Months?
If the IRS is auditing you and you haven’t heard from your auditor in months, this may not be a bad thing. Perhaps your auditor was terminated or transferred. Another explanation is that your file could be sitting at the IRS to be processed or the file may simply be in a pile being over looked or even better, misplaced. Either way, this could result in your favor since the IRS auditors do have deadlines.
The IRS auditors have deadlines that must be followed with regards to closing your file. This is usually within 28 months from the date you filed your return or the date that it was due which is always on April 15th. The exception to that is August 15th if you filed for an automatic extension via form 4868. If you filed for a second extension using the form 2668 then October 15th would be your deadline. If extenuating circumstances have taken place on the auditor’s behalf, the IRS legally has an additional 8 months to complete your audit. That additional 8 months is time that the IRS does not want to spend having your case open and investigated, as this time is set aside for the appeals process.
Let me give you an example. If you file your 2006 return on April 15th, 2007, then 28 months from then is August 15th 2008. The eight months remaining isn’t for investigative purposes but rather for appeals processing. If you filed for an extension then the 28 months can begin as of August 15th, making the deadline for the auditor December 15th 2008. The same applies for the second extension and so on.
Calling the IRS may result in your file being found in a timely fashion. On the other hand, leaving it alone may result in the time expiring for the IRS to complete the audit. If that happens, you may be free and clear due to your file being over looked, misplaced or the auditor’s unfortunate termination. Either way, you should always remain calm and patient. Expediting the process will not help you in any way and may even be to your detriment. Do not call, email or contact the IRS in any way. Continue to do business as normal, being sure to accurately file any taxes in subsequent years. Knowing your rights and their deadlines is imperative in this situation.
The IRS auditors have deadlines that must be followed with regards to closing your file. This is usually within 28 months from the date you filed your return or the date that it was due which is always on April 15th. The exception to that is August 15th if you filed for an automatic extension via form 4868. If you filed for a second extension using the form 2668 then October 15th would be your deadline. If extenuating circumstances have taken place on the auditor’s behalf, the IRS legally has an additional 8 months to complete your audit. That additional 8 months is time that the IRS does not want to spend having your case open and investigated, as this time is set aside for the appeals process.
Let me give you an example. If you file your 2006 return on April 15th, 2007, then 28 months from then is August 15th 2008. The eight months remaining isn’t for investigative purposes but rather for appeals processing. If you filed for an extension then the 28 months can begin as of August 15th, making the deadline for the auditor December 15th 2008. The same applies for the second extension and so on.
Calling the IRS may result in your file being found in a timely fashion. On the other hand, leaving it alone may result in the time expiring for the IRS to complete the audit. If that happens, you may be free and clear due to your file being over looked, misplaced or the auditor’s unfortunate termination. Either way, you should always remain calm and patient. Expediting the process will not help you in any way and may even be to your detriment. Do not call, email or contact the IRS in any way. Continue to do business as normal, being sure to accurately file any taxes in subsequent years. Knowing your rights and their deadlines is imperative in this situation.
IRS Audits While Filing
If you receive notice for an IRS Audit, and are about to file your taxes for this year, it is strongly recommended that you wait. While this may create some tension and stress, getting through this time can be realtively easy if you know your rights and obligations. Filing a new return can result in that return being audited as well if your case is still open. For right now, file for an automatic extension which gives you until August 15th to file your new return. The automatic extension form 4868 needs to be sent in by April 15th however. To avoid further IRS audit issues, pay all taxes due by April 15th.
Once you have filed for the extension, and the deadline arrives, it is possible that you IRS Audit will still open. If the IRS audit is still going on in August and you are near your automatic extension deadline, file for another extension. This can be done using IRS Form 2688. This form will need to be sent to the IRS no later than August 15th. The second extension will then give you until October 15th to file your return if the extension is granted. Hopefully, the case will be handled and closed out by your the time second extension deadline rolls around.
But what happens if the second deadline of October is quickly approaching and the case is still open? In this case, don’t file your taxes until after the audit is complete. As long as you are not defrauding the IRS and are paying any applicable taxes by deadline, you will not be charged penalties or interest. If you find that you owe more money than what you sent on April 15th , send that in by the extension deadline of October 15th and write a note to apply the monies to your un-filed taxes for the 2008 year, as an example. If the Auditor asks you about your tax return for the current year, let them know that you are not ready to file. An auditor can not make you file your tax return.
The key to any IRS audit is to be educated and don’t be afraid. As long as you are paying applicable taxes and keeping the IRS aware of your status, you should be fine. If you feel that you are over your head, contact an IRS attorney and/or a tax advisor. Either way, the key step is to stay informed of your obligation as well as what an auditor can and can not do.
Once you have filed for the extension, and the deadline arrives, it is possible that you IRS Audit will still open. If the IRS audit is still going on in August and you are near your automatic extension deadline, file for another extension. This can be done using IRS Form 2688. This form will need to be sent to the IRS no later than August 15th. The second extension will then give you until October 15th to file your return if the extension is granted. Hopefully, the case will be handled and closed out by your the time second extension deadline rolls around.
But what happens if the second deadline of October is quickly approaching and the case is still open? In this case, don’t file your taxes until after the audit is complete. As long as you are not defrauding the IRS and are paying any applicable taxes by deadline, you will not be charged penalties or interest. If you find that you owe more money than what you sent on April 15th , send that in by the extension deadline of October 15th and write a note to apply the monies to your un-filed taxes for the 2008 year, as an example. If the Auditor asks you about your tax return for the current year, let them know that you are not ready to file. An auditor can not make you file your tax return.
The key to any IRS audit is to be educated and don’t be afraid. As long as you are paying applicable taxes and keeping the IRS aware of your status, you should be fine. If you feel that you are over your head, contact an IRS attorney and/or a tax advisor. Either way, the key step is to stay informed of your obligation as well as what an auditor can and can not do.
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