Posts Tagged ‘audits’

How To Fight the IRS

Posted on: April 14th, 2010 by

Fight IRS - Rockville, MDIf the IRS decides to target you with an audit, what would you do?  Most people would just surrender, no matter how good a case they may have.  Taking on the government, to most,  sounds like the ultimate nightmare: costly, time consuming, and stressful.  But if you are ready for the challenge, there are some smart ways to fight back.  First, you should begin by hiring a smart, reputable tax preparer.  Not only will they know the tax codes backwards and forwards, but they will take over the bulk of the ever-exhausting fight with the IRS.  They will also help you to decide how far to take your fight.

If you haven’t started already, make sure you save all of your tax returns forever and supporting documents for at least 3 years.  The IRS only has 3 years to initiate an audit.  See, Paper Records: What to Keep, What to Toss.  It may seem like a nuisance, but all those papers are the most important documents for your case.  The more organized and less holes you have in your documentation, the better the chance you have at winning your appeal.

If you don’t want to go to the trouble of hiring a tax specialist, you should consider taking your case to the IRS Taxpayer Advocate Service (TAS).  This is an organization within the IRS that helps taxpayers resolve tax problems as well as advocate for changes within the system.  You may be eligible for this service if you have tried to resolve your problems through normal IRS channels and have gotten nowhere, or if you believe an IRS procedure is not working as it should.  This service is also available to those whose tax problems are causing financial hardships and they cannot afford to hire a specialist.

Most people who decide to truly have it out with the IRS file a petition with the US Tax Court.  If you choose this route, you generally do not need to pay the amount in dispute while your case is pending.  (This according to the court’s website:  If the tax court decides that you do owe taxes or you come to a settlement about what you will owe, the interest on those taxes runs from their original due date until paid in full, unfortunately.  Your only other option is to have your case heard in Federal District Court, but the disputed amount generally needs to be paid in full and file a refund with the IRS before the case is filed.

Choosing which option is best for you ultimately is your decision, however, at least speaking with a tax specialist is always advisable.  Most first time consultations are free.

How Not to Get Audited

Posted on: April 12th, 2010 by

CPA - Rockville, MDThere are a few not so smart ways to attract an audit or other unwanted scrutiny from the IRS.  This tax season, the IRS is gearing up to initiate and intensify its audits of individual taxpayers.  But, never fear, there are steps you can take, or rather, not take to minimize your chance of an audit.  A lot of this is very simple as well.  First, make sure all the 1099 forms you received for dividends, interest, and other investment receipts are reflected somewhere on your tax return.  IRS computers have gotten much better at matching the copy of the 1099 sent to the agency with your return, notating any omissions.

Second, if you are claiming large deductions for gifts to charity, make sure you meet all the necessary paperwork requirements.  This includes, have a receipt or letter for each donation, no matter how large or small, as well as a letter of acknowledgment for any donation over $250.  A canceled check simply does not make the cut as proof.  Also, to the IRS, $1953.12 looks a lot more real on a deduction form than $1950.  Deductions ending in a bunch of zeros are not your friend.

Last year, the IRS issued a manual to its agents about how to look for and recognize hobby losses.  Taxpayers have been attempting to write off their fun and game activity for years, illegally.  They label them as businesses and claim them as a loss for self-employment.  Any self-employment loss on Schedule C is asking for an audit, especially if the activity, or loss looks like fun.

If you are going to use a tax preparer, make sure you use a reputable accountant.  The IRS is aware of dodgy tax preparers and keeps tabs on them (even though they won’t admit to doing so).  Be wary of accountants/CPAs who base their fees on a specified cut of the refund, claims to get you bigger refunds than others, or makes any suggestion to claim credits that you are probably not entitled to.

Lastly, and yes, it seems like the biggest no-brainer of them all, do not run around shooting your mouth off about how you put one over on the IRS.  The IRS is now authorized to pay big bucks to people who tattle on you.  This could land you fines, penalties, and even a period of incarceration.  I would recommend to just hire a reliable accountant to take care of your taxes, especially if you don’t have the proper program or patience to sit down and do them correctly yourself.