Being audited can be a terrifying experience. When notified, the burden is now on you to prove all the numbers on your return are correct. You should only talk to the auditor long enough to refer him/ her to your tax professional. Like representing yourself in court, the outcome is only as good as your representation.
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When you’re notified about an audit by the IRS, panic is a natural reaction. While your finances may be in order, the IRS generally has a good reason to audit you and they will find anything you have hidden either knowingly or unknowingly. You should only talk to the auditor long enough to refer him/her to your tax professional, and get organized.
The tax code is extremely long, complex, and changes often. Therefore it is important to get an educated second opinion, and if your circumstances dictate it, representation in front of the IRS from a trusted, local, ethical, BlackFin Certified™ Tax Professional. We can:
Negotiate with IRS agents over the position taken on original tax return
Comprehensively research to dispute audited items
Assemble alternative supporting documents to minimize disputed items
Review IRS Audit Calculation Tables for accuracy
Communicate directly with the IRS on behalf of the Taxpayer
Represent taxpayer in collections upon audit judgement
Why Me? What should I do?
There is a long list of reasons why the IRS may choose to audit you. Many are common such as if you are largely or entirely paid in cash. Or it could be that you drew the short straw for a random audit. Regardless of the circumstance of your audit, you should seek professional representation to negotiate with the IRS on your behalf.
Much like trying to represent yourself in court, the outcome is only as good as your representation. You may think that you can’t afford such professional assistance, however, when it comes to your taxes, you really can’t afford to take any chances on your own.
It pays to know the rules of the game when being audited. Tax Auditors are experts in uncovering items that weren’t covered in the initial audit notice. Having a Tax Professional on your side significantly increases the odds of having a positive outcome from your audit, and can end up saving you a lot of money.
What is an IRS Audit?
An IRS Tax Audit is when the IRS tries to confirm the accuracy of the details of your tax return. The whole process begins with an IRS computer. The computer will assign each tax return a score, with higher numbers representing the higher potential for an audit. These tax returns are passed on to a human IRS agent to review and decide whether or not to audit you.
During the Audit process the IRS determines if you have properly reported all income and made the correct deductions. It is your responsibility to prove to the IRS that what you filed was indeed correct and you must be able to provide supporting documentation. The IRS will determine if you did truly report properly. If they determine that you did not, the IRS will assess you additional taxes to pay.
Types of IRS Audits
This is the most common audit type. This type of audit is accomplished through the mail. Typically, the IRS will ask you to mail specific documentation to them supporting certain items on your filed tax return. This type of audit generally pertains to stock transactions, sales of real estate documentation, and details on other specific itemized deductions. These are generally the result of differing 3rd party documentation.
An Office Audit is a meeting set up with the IRS, where the IRS determines the date, time, and specific supporting documents you should bring. The IRS will schedule the meeting via a letter sent to you. These types of audits mainly deal with “significant” items on your tax return.
During the audit, the auditor may ask difficult questions aimed at tripping you up. You should tell them that you are not prepared to talk about those items, and that you will consult a Tax Professional. Your Tax Professional will give you the correct advice on what to say and offer proper support
Field or Home Audit
This type of audit begins with a notice that the IRS wants to come to your home or business for an audit. These are typically the most serious types of audits. If you receive one of these audits it is highly suggested that you have a Tax Professional on your side to ensure the audit flows smoothly.
How did this happen to me?
Your Return Triggered an Audit Flag
You’ve probably seen a list of common ‘audit flags.’ For instance people who make large charitable contributions, and claim large charitable deductions may trigger an audit flag. Most audit red flags are caused by legitimate tax deductions and credits. Another example is if you are a consultant or entrepreneur with a legitimate home office, you are entitled to claim a home office deduction.
You may not even realize that you have tripped an audit flag, millions of people are partially audited. The lesson here is that if your return stands out from the crowd in any way, you may very well trigger an inquiry from the IRS. However, that is no reason to miss out on legitimate tax breaks. Instead, make sure to maintain meticulous records to justify your claims.
Someone blew the whistle
Frankly, it happens, there are people out there who turn in their spouses, friends, and coworkers to the IRS. It may be out of spite, but greed also plays a large role. The IRS Whistleblower-Informant Award pays informants up to 30% of all tax penalties and collected funds that result from provided tips. Even people who are involved at an arm’s length in tax evasion schemes may collect rewards from the program.
A Business Acquaintance was Audited
If someone you do business with was audited, you could very well be next. The IRS will at the very least request clarification about your dealings with the person being audited. The IRS Audit Process turns over every rock – so to speak – make sure your records are in order, and you shouldn’t have a reason to worry.
You Filed a Return Late, or Not at All
Requesting an extension on your federal tax return does not count as filing late, nor does an extension request trigger an audit flag. However, filing your return late without requesting an extension does make your return much more likely to be flagged for an Audit. If you file a late return, the IRS will assess a large penalty of 5% of the taxes you owe every month for up to 5 months.
If you fail to file a return, the IRS may file one for you – without any and all tax breaks you might be entitled. This is called a Substitute for Return (SRF). If the IRS has filed a SFR for you, you can refile your tax return to take advantage of the tax breaks and deductions they conveniently left off.
In 2013, the IRS tagged 12.1 percent of taxpayers with incomes over $1 million and 17.1% of taxpayers with assets in excess of $10 Million. If you’re a wage earner filing W-2 Forms and report income less than $200,000 your chances of being audited were less than 1% during that same time period.
It was random
Every year the Internal Revenue Service randomly selects a number of returns to audit. This number of random audits is fluctuating after the recent recession, budget cuts, and sequester in 2013. Don’t let the numbers deceive you, they are still auditing random taxpayers.
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