Tax Audit by The IRS

When the IRS requests that you contact them to provide proof of deductions, income, or to consider the treatment of various items on your tax returns, it is considered an IRS audit. Bringing your receipts and other information to the revenue agent as verification is not the only thing you have to do when you are subject to an IRS tax audit. People don’t realize that the IRS examiner is trained to ask probing questions in order to come up with reasons why your deductions should not be accepted.
In and IRS audit, the IRS often does not distinguish between the questions asked in a general audit vs. a criminal investigation. This has been a complaint of the professional community.

Questions about your financial status (focusing on your lifestyle, standard of living, and other elements unrelated to the items on your tax return) will be asked. This is one reason you could still be in jeopardy even if you have receipts, and feel that your return was prepared correctly. Be very cautious when you fill out the IRS audit report.

Professional IRS Tax Audit Representation

There is a lot open to interpretation given the manner in which the tax code is written. You must meet ‘purpose’ tests and other tests that even many accountants take for granted. Even when I felt that we had enough evidence to justify our position, I have personally experienced IRS audit officers denying deductions for my clients!

You need the help of an experienced professional who knows the tax laws, and how to argue your position, any time that the IRS requires you to prove something to them.

The ability to represent your position and also maintain a good rapport with an IRS audit person is essential during the audit period. If not, then IRS audit person in question can and will make adjustments against you.

How To Survive A Tax Audit? Get The Expert Audit Representation Before The IRS!

Audits are selected based on IRS programs. One program looks for compliance while the other tries to find errors. Are you afraid because they have not examined your return yet?
Auditors tend to be nicer these days. They also tend to be more educated than the collection officers. Unless they have to, they do not want to send your case to the criminal division. I have represented people who have left out income, and have taken questionable deductions, on their tax returns.

Being Audited? Scared Of Criminal Fraud Charges?

It is unlikely that you will be investigated for criminal fraud. It usually depends on your line of work. You must choose the best representation before the IRS if you are scared of criminal fraud charges.

I have never had an auditor accuse my client of criminal fraud during my career. The auditor was happy in each case to make the adjustments and charge the taxpayer additional tax, interest and penalties.

Of course, you must say things along the lines of, “I forgot, I guess I made an error, or I can’t find the proof for the deduction.” What you can’t say, however, is, “Oh yeah, my friend who is an accountant said that I should put down a lot of expenses because there is less than a 1% chance of being audited.” Although there may be less than a 1% chance of being audited in your case, you still have to be very careful not to imply that you ‘willfully’ did anything that you knew was wrong while preparing your tax return. Got it? I don’t know of anyone foolish enough to do this. If you follow this manual then you will have very little to fear; unless of course you can’t document the items on your return and don’t want to deal with the increased tax liability.

If The IRS Is Auditing You, Be Prepared With Documentation

There are three types of audits: correspondence, office audit and field audit. The IRS sends you an examination report if any of these produces a tax liability. You have 30 days to appeal it.

A correspondence audit through the mail usually requires documentation proof for itemized deductions, family credits, retirement plan payments, small business expenses, or small casualty and theft losses.

It is better to set an appointment at the IRS agent’s office if you are being audited. For an office audit, you need to gather up any information and documents to prove the deductions you claim for: charitable contributions, itemized deductions, capital gains, employee business expenses, rental property, etc.

The auditor will usually conduct a field audit if the IRS is auditing your business. You need to be prepared and show evidence of all your expense deductions that are business related. The IRS agent usually won’t specify the reason why you are being audited when you are subject to a tax audit for your business expenses.

Audit Reconsideration

Once the audit is over, and you missed it. All is not lost. We can request an Audit Reconsideration. In many cases, the IRS will open up the audit again, so that you can have a chance to present your proof for expenses, etc. An audit reconsideration may be requested if you subsequently obtain receipts you were not able to submit before.

Request For Tax Audit Reconsideration

I have represented people in audits from other states without any problems. It is not necessary, or better, for the taxpayer to sit face to face with an auditor to prove your income and expenses. You should not let the auditor into your home or office to conduct the audit. As a representative, I have yet to have the IRS refuse to have me send the information by mail when I have an out of town client who was dealing with an IRS tax audit. Locally, I don’t mind appearing with my client. We have a pretty decent audit group here in Houston.

Help Preventing An IRS Tax Audit

Triggers, Red Flags, Etc. That Increase The Odds Of Being Selected For An IRS Examination.

Exaggerated Expenses – Many common expense adjustments come from medical, travel and entertainment, meals, vehicle, office in home, and the write off of personal computers, cell phones, uniforms, rent, and contract labor. If any of these are unusually high in relation to income, it will increase your chances of a tax audit.

Mistakes – Don’t file a careless, incomplete, or illegible return. The agent may become suspicious of potential criminal fraud. If you file a sloppy tax return, your chances of being audited increase.

Consistency – Itemized deductions such as medical, charity, employee business expense, interest, etc. all must be reasonable, and consistent with prior years.

Some Audit Proofing Tips On What Must Be Done.

Prepare your tax return. Sit back and analyze it. Is it reasonable to have spent the amount you did on your expense items, given your current amount of income? If not, document the return with a sworn notarized attached statement, explaining the validity and purpose of the expenses. Then, look at the prior years tax return. Is it reasonable to go from last year’s expenses and income to this year? If not, you may want to explain a few things to avoid a tax audit.

File An Extension Of Time To File

You should always pay your taxes when they are due, either through quarterly estimates or withholding. If you file an extension of time to file, which allows you to file by Oct 15th, and you file right before the deadline, your chances of being audited are greatly reduced.

Willful non-filing is a criminal offense, so please file your income tax return forms each year, even if you are late. Once you file your return, the statute of limitations for the IRS to audit you begins. The IRS has 3 years from the date you file or the due date of the latest extension, whichever is later.

I Received IRS Audit Letters Or Notices In The Mail

Types Of Audits

Face To Face – For an in house or field audit, it’s best to meet with the IRS at the place of business of your representative, or at the IRS. The worst place is your business or your home. It is easier to explain your return items in a face to face meeting.

Semi-Automated Compliance – Usually math errors and differences in third party reporting from the IRS’s matching program will cause letters to be generated attempting to adjust your tax liability. These letters are to be responded to with evidence that there should not be an unfavorable adjustment.

Correspondence (Mail Audits)(CP 2000, For Ex.) – These letters identify items in question and a request to mail documentary proof to explain why you may have under reported income or over reported your expenses. You can mail the information in or request the audit be transferred to a local area office. You can better explain things in a face to face meeting.

You must comply with an audit request, or the IRS may summons your records, personally pay a visit to your home or office, call you, or visit neighbors and ask them questions.

Please contact us if you want assistance in resolving issues questioned in any IRS correspondence letters or Mail Audits.

Fear Of An IRS Audit Exam?

Your Best Tax Audit Defense Survival Guide

If you are being audited, you should seriously consider a professional audit representation. Consider your audit adjustment exposure in relation to the CPA’s, Attorney’s, or Enrolled Agent’s fees for representing you. If you can’t find your receipts, how will you justify your expenses?

Many auditors will disallow your deductions if you have missing or lost receipts. If you cannot back up the deductions you claimed, better than making up phony receipts that the auditor refuses to accept, you should discuss alternative ways of documenting acceptable evidence, with a tax representative.

A good tax audit defense advocate knows that you should never admit willfulness concerning the omitting of income, and errors of deductions. Your accountant should know the secrets of what is considered acceptable receipts, invoices (proof of purchase), business purpose, rules of evidence, and what items you normally don’t need receipts for.

WE DO! And you will too, when you become a customer of ours. Contact us now, for the Audit relief you deserve.

Who Gets Audited?

• Individuals who file a personal 1040 income tax return.
• Large, small, and mid size business’ who file corporate 1120, partnership 1065, llcs, llps, etc. have financial audits.
• Estates, tax form 706 and trusts form 1041.
• Your retirement plan, contributions, etc.
• Any other entity who is required to file a U.S. income tax return.

How Much Time Does The Audit Process Take?

I have concluded audits in one day, though it is rare. At the other extreme, I’ve had audits last a year or longer. Revenue agents of the IRS will take the time they feel is necessary to conclude an audit. If the IRS feels they will get a large adjustment, decrease the odds of audit abuse, obtain public policy and other benefits, they will audit you until you stop them!

Appeal The IRS Tax Audit Decision

If you don’t like the findings, you can speak to the manager. Then you can file an appeal with the auditor, addressed to IRS appeals. The auditor will then clean up their work papers, maybe make adjustments in your favor, and then send the appeal to the appeals division. See our section on audit appeals.

How Does A Face To Face Audit Work?

Be Prepared With All The Necessary Evidence For Your IRS Examination

Your audit letter will list the items on your tax return that the IRS wants to examine. In my experiences, I’ve found that it is a good idea to prepare two sets of documentary evidence. One based on the items in the letter, and another to support the rest of the return. Why?

Auditors use statistical sampling guidelines. While you are being audited, if they are not satisfied with the proof you provide, they will ask questions concerning the return as a whole. Make sure you don’t get caught off guard. You need to be the most prepared possible, for your protection.

Never give the auditor your original receipts. If you don’t have all of your evidence with you, the auditor will draft a document request and give you 30 days to get the information. An audit adjustment report will be prepared, showing you the increase in tax, and the penalties added to it. If you decide not to present additional evidence, the audit examination report will be mailed to you with a 90 day notice of deficiency letter. This gives you the right to appeal or to go to tax court. Prior to filing with IRS appeals, you can negotiate adjustments by contacting the auditor and the auditor’s group manager. Often you can agree to compromise on a reasonable settlement amount.

Tax Audit Questions? Solution…

Obtain a consultation with an experienced professional that does a lot of IRS audit representation. Have your tax audit questions answered. The goal of an experienced professional is to assess your exposure, which is how much money you can potentially lose. You can then discuss what it will cost to be represented. If the costs are reasonable in relation to the potential tax that can be charged to you, obtain the representation (assuming of course that you are satisfied with that person’s knowledge, personality, and experience). If you are willing to risk additional assessment, represent yourself. Do not try to bargain down the fees. You cannot predict exactly how much time it will take someone to represent you. Either do it yourself or pay for experienced IRS audit help.

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