Tag Archive Tax Audit

Why you won’t be audited?

Last year, the US saw a huge fall in the tax audit rates by 5.3%. This reduces the probability of individuals being audited.  This research was conducted by the Transactional Records Access Clearing system.  This trend is due to the cuts in the federal spending.  This process is called sequestration and this is a process which cuts down the employees who are eligible for tax audits so that the fraudulent individuals can be tracked down easily. Kevin Brown, leader of Pricewaterhouse Coopers ‘tax controversy and dispute resolution practice, rightly said that if the number of individuals decrease then it correspondingly decreases the number of audits.

The National Treasury Employees Union conducted a survey and it was found out that these cutbacks could impact enforcement actions. The audits usually conduct its audits on days when the works have five to seven unpaid furlough days in the summer. The cuts are also timed in that part of the season, where there is a recruitment freeze which prevents the agency to fill up jobs.  In 2011, the IRS had 7000 full time employees lesser than what it had during the year 2010. The staffing and other enforcement actions were lesser by 6% last year.

The lesser number of individuals to be covered for auditing does not mean that the defaulters can make merry. On the contrary, it is tougher to escape this way because being one among 10,000 people definitely has more visibility than being one among 100,000 people.  The way the audits are being conducted has also changed. Earlier, face to face audits were the fashion. However, this has now been reduced and audits through email correspondence are the order of the day recently.  Audits through emails have increased to almost triple the amount of quantity around 20 years ago.

The IRS has effective software systems to track if the income is not reported rightly. Most of the cases of under reporting of income is tracked through this software by matching the income filed in the form 1099 and other related paperwork, while tax filing. Fewer audits are not necessarily a reason for the defaulters to enjoy. The fewer audits take a longer time to get completed than the frequent speedier audits that was the process some time back.

If a defaulter is found to have misreported income or done fraudulent tax filing in the new long audit process, then the interest and the penalty charges that he needs to pay is exorbitant than what the frequent audits charged. This puts the cheaters in a great fix, as in the current scenario, they not only have to pay taxes due for years together but also have pay very high penalty charges of each year’s missed payments.

Though the audits on individuals have been reduced drastically in the year 2012, the frequency of the audits on the corporate organizations has not changed according to the recent IRS survey. More than 17% of the organizations were qualified for audit in 2012.

BoE, IRS and FTB Tax Audit On The Rise

BoE, IRS and FTB Tax Audit On The Rise | Protect Yourself

We have seen an increase in Franchise Tax Board, Board of Equalization (Sales Tax) and IRS Tax Audits in recent months.  In last few months, California Sales Tax Officers have also visited the businesses in various counties including Alameda, Contra Costa, Santa Clara and requested to see their sales receipts and record of their sales transactions.  In many cases, BOE has asked these businesses to bring their detailed sales record to BoE office in Oakland CA.  Certain types of businesses like Gas Stations,Grocery Stores, Retail Stores and businesses with majority of cash transactions are of particular interest to FTB and IRS.

We feel it is important for our fellow business owners to prepare for such visit or an audit by IRS, BoE, EDD or FTB.

We will be holding a free conference call in February to discuss important steps you can take to prepare yourself for such visit.  We will discuss many scenarios that may catch you off guard.

For example:

  • What kind of documents IRS, FTB, BoE or EDD may ask to see ?
  • How to prepare your employees for BoE, EDD< IRS and FTB visits?
  • What should your employees know about BoE, EDD, IRS and FTB Audits?
  • How to deal with customers when BoE,  IRS or FTB agents are at your site?
  • What should you tell or not tell to Tax Auditors?
  • When to get professional help with your Audit?

We conducted a Seminar this morning answering these kinds of questions.

 

 

Avoiding the Dirty Dozen Audit Red Flags

The taxpayers are warned on manipulating any information related to the filing of their tax return deductions. This can let loose the ever inquisitive nature of the IRS and you can invite trouble upon yourself, which is best avoided at any cost. There are many factors that may flag your return for an audit and you should always consult with your tax professional to ensure that your return is in compliance with all applicable laws. In this article, I am going to point out twelve indicators / warning signals which in case exceed from what is believed to be normal, can trigger an inquiry from the IRS. The twelve ‘Red Flags” as they are addressed, are listed below.

  1. Filing higher income.
  2. Failing to report all taxable income as stated by the duplicate records available to the IRS.
  3. Filing for large charitable deduction, disproportionate to your known income.
  4. Filing for home office deduction.
  5. Filing for deduction on real estate rental losses.
  6. Filing for deduction on travel, business meals & entertainment.
  7. Filing the deduction for full (100 %) use of a vehicle.
  8. Filing the deduction on the losses related to a hobby activity.
  9. Filing a deduction for running a business on cash.
  10. Failing to report the account you hold in a foreign bank.
  11. You engage in transactions involving currency.
  12. Filing for deductions which exceed the average.

Availing of deductions sufficing the dictates of being reasonable can actually help you avoid unnecessary hassles, which would emanate out of a situation like facing the IRS audit. A part of the mentioned “hot spots” are clear manifestations of a planned deceit; the rest can be majorly attributed to ignorance on the taxpayer’s part on filing deductions. An experienced tax expert can help you remain on desired procedures along with putting up an effective representation for you in case required.

Handling the IRS audit on your own is not advisable: you wouldn’t have the expertise and skill required in handling the excruciatingly long & intimidating interrogation by the examiner. Rather the nervousness ensuing from the process holds the potential of you spilling off the restricted information to the auditor. This would worsen the matter further for you.

The bill raised by the examiner would be proportional to the information you give, as he digs for more.

Taxpayer has the legal right to representation. You can contact a seasoned tax expert to represent you at the IRS audits and aid you in resolving your tax issues forever. 

Hiring a Tax Expert to Face an IRS Audit

I am nervous and unsure about the impending audit from the IRS for my 2010, tax returns. I believe that they are pointing towards the irregularities in my deductions and income. I need to know whether I would be required to represent myself to them or can it be taken care of in case I pay the arrears involved?” asked Mr. Ravi. S

In this scenario we strongly recommend him on hiring an expert who can represent him on this tax audit. This is crucial to him as the IRS can refer his case to criminal investigation for prosecution. He not hiring a representation would tantamount to approaching the court with no lawyer.

Below are mentioned some facts about IRS audits in order to help you understand the gravity of the situation being discussed.

The IRS has the options of auditing you by mail, face to face in their or in your office. Amongst all the three, the face to face audits are more serious as the examiner would closely scrutinize the documents related to your income & deductions.

Initially you are interrogated on some 54 seemingly innocuous questions. What will come next would depend on the way you had handled these questions initially. Talking more than required and speaking the truth is recommended here; facing this unprepared, can fail you on both these crucial aspects.

Hire a professional tax expert in order to avoid this sticky situation. The below mentioned points are advisable to be kept in mind while hiring a professional tax expert.

Choose an experienced hand over a greenhorn in this field. Hiring someone aptly qualified with hands on experience in handling IRS audits would save you unnecessary costs over time. An experienced professional would productively channelize your fundamental rights – fairness, due process & representation – as a tax payer, keeping your best interests in mind.

Following are some of the strategies we have used at our firm ( Tax Resolution Services) for handling IRS audits earlier: If possible , obtain a “ no change” letter; making sure that any additional taxes assessed remained lowest as per the law; helping clients in reducing any accruing interest, penalties or back taxes, along with pushing away the possibility of a criminal prosecution by the IRS ; Systematic steering of the client through the entire process.

Other than checking the credentials at a meet-up, the candidate’s as well as the company’s credentials can additionally be verified through Google and by fishing out the ratings of the Better Business Bureau of the same.

 Seminar on Audit By Sanjiv Gupta CPA

BoE, IRS and FTB Tax Audit On The Rise | Protect Yourself

We have seen an increase in Franchise Tax Board, Board of Equalization (Sales Tax) and IRS Tax Audits in recent months.  In last few months, California Sales Tax Officers have also visited the businesses in various counties including Alameda, Contra Costa, Santa Clara and requested to see their sales receipts and record of their sales transactions.  In many cases, BOE has asked these businesses to bring their detailed sales record to BoE office in Oakland CA.  Certain types of businesses like Gas Stations,Grocery Stores, Retail Stores and businesses with majority of cash transactions are of particular interest to FTB and IRS.

We feel it is important for our fellow business owners to prepare for such visit or an audit by IRS, BoE, EDD or FTB.

We will be holding a free conference call in February to discuss important steps you can take to prepare yourself for such visit.  We will discuss many scenarios that may catch you off guard.

For example:

  • What kind of documents IRS, FTB, BoE or EDD may ask to see ?
  • How to prepare your employees for BoE, EDD< IRS and FTB visits?
  • What should your employees know about BoE, EDD, IRS and FTB Audits?
  • How to deal with customers when BoE,  IRS or FTB agents are at your site?
  • What should you tell or not tell to Tax Auditors?
  • When to get professional help with your Audit?

When can you join the conference ?

Feb 16th 2013 From 10:00 AM to 12:00 PM

Eventbrite - Dealing with Audit (FTB, Payroll, IRS,)

Register and Join the Conference Call | Learn and earn a chance to win iPad Mini.

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Avoiding IRS Tax Audit This Year

There are many things that seem to raise the red flag every time a tax return goes to the IRS. This article is going to point out some of the reasons behind an IRS audit. These points tend to increase the probability that you are going to get an audit from the IRS at one point in your life.

The first thing that should always put you on the look out is if you make a lot of money. Generally, people who earn a lot of money tend to underpay their taxes. The problem is that while people make money, they tend to spend it on many different things and forget that they are required to declare all sources of income and pay the taxes that arise from such incomes. This means that there is always the risk that such a person is underpaying his taxes or not paying some of them at all. This is a matter of concern for IRS.

There is also the risk that such a person fails to report all of the taxable income from 1099’s or W-2’s reported to the IRS. This failure may be intentional or just out of ignorance.

Another factor to look into is the charitable deductions that you make or receive. Giving back to charity and accepting charitable donations is one of the ways in which many people keep off paying taxes. However, there are some deductions that are tax exempt while others are taxable. There are many other types of deductions that you should also look out for the home office deductions that are claimable the rental losses that you make, business meals and travels as well as entertainment expenses.

One of the common mistakes that many people make is to write off the losses that have been acquired from a hobby activity among the business losses. In some cases, business persons who use their vehicles for business activities tend to claim 100% of the use of the vehicle on the business. Some of these things almost always tend to raise red flags all over the IRS servers.

Other things that may raise the IRS red flags include running a cash only business, failure to report the foreign bank accounts that individual holds and trade in currencies. Even then, whatever the reasons that you may have, it is important to avoid IRS audits. Overstating deductions and profits in most cases also attracts the IRS to your doorstep.

This is why it is important to use professionals in this field to cover the loopholes that you may have had. Professionals will also help you better organize your financial returns and reduce the possibility of raising the red flag at the IRS.