If 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: www.ustaxcourt.gov)  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.

CPA Rockville – The first-time home buyer tax credit applies to individuals or couples who have purchased a new home after April 8, 2008 and before May 1, 2010.  There are a few different versions of the credit depending on when the home was purchased:  the first, for homes purchased in 2008, the credit, with some exceptions, must be repaid and takes the form of a $7,500 interest-free loan; the second, for homes purchased in 2009 prior to November 7, the credit is for a maximum of $8,000 and, with some exceptions, does not have to be repaid, but its only for new homeowners that have not owned a primary residence in the previous 3 years; and finally, beginning November 7, 2009, an additional category of new home buyers, long term residents was added.  The credit for this group is a maximum of $6,500, which, with some exceptions, does not have to be repaid.

The credit is for 10 percent of the purchase price of the home, with a maximum available credit of $7,500 (or $8,000 depending on the purchase date) for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns.  Any home purchased as your primary residence and located within the United States qualifies.

This credit is not applicable for higher-income taxpayers.  For purchases on or before November 6, 2009, the phase out range for single taxpayers based on the modified adjusted gross income (MAGI) is $75,000; and for married couples is $150,000.  For purchases after November 6, 2009, single taxpayers MAGI must be less than $125,000 and married, joint filers must be less than $225,000.

Contacting your local, experienced CPA in Rockville may make filing this credit much less of a headache and prevent having to file any amendments later.  Since very specific documentation is required by the government for this credit, the return must be mailed in as a hard copy.  Consult your trusted tax specialist if you have any questions.