First and foremost: An I.R.S. Audit is not an accusation of WRONGDOING. It is what is known as an impartial review to assess return filing accuracy. I.R.S. selects returns to audit to determine if income, expenses, and/or credits are being reported accurately. The best and only way to survive, endure and withstand an Audit is for the taxpayer to arm himself with information. The gathering and organization of information are essential to the taxpayer’s ability to understand the process, understand why he was chosen to be audited, know what his responsibilities and rights are, and know how to appeal the findings. Here is what you need to know:
- Audits come in different forms. First, if you are to be audited, I.R.S. will always inform you by letter. The first kind of audit is known as a correspondence audit. This type of audit usually comes about due to making minor mistakes (example would be attaching a Schedule to the Tax Return), and requires the taxpayer to mail information to I.R.S. Once the information is mailed to I.R.S., if they are appeased, the case will be closed. The second kind of audit is known as the office audit. In this case, the taxpayer is required to bring the tax related information to an I.R.S. office for review. An example for this type of audit can arise out of a high medical expense deduction, and the I.R.S. would want to see the cancelled checks and the medical bills. The third kind of audit is the field audit. In this case, the I.R.S. agent will visit either your home or your business to double-check the accuracy of your tax return(s).
- Some returns have Red Flags to the I.R.S. Agents. There are approximately 16 Red Flags that can lead the I.R.S. to single out a particular return for an audit. They are: failing to report all taxable income, taking higher than average deductions, running a small business, high income levels, taking large charitable contributions, claiming rental losses, taking an alimony deduction, writing off a loss for a hobby, deducting business meals, travel and entertainment, failing to report a foreign bank account, claiming 100% business use of a vehicle, taking early payout of a retirement plan, claiming day trading losses, failing to report gambling winnings, claiming the home office deduction and engaging in currency transactions.
- You have rights during an Audit. Your rights as a Taxpayer (https://www.irs.gov/pub/irs-pdf/p1.pdf) are:
- Right to be Informed,
- Right to Quality Service,
- Right to pay no more than the Correct Amount of Tax,
- Right to Challenge the I.R.S’s position and be Heard,
- Right to Appeal an I.R.S. decision in an Independent Forum,
- Right to Finality,
- Right to Privacy,
- Right to Confidentiality,
- Right to Retain Representation, and
- Right to a Fair and Just system
- Audit Survival Tips. Some tips are:
- If you are not ready and do not have time to gather all your records, request a postponement.
- Meet with your Representatives to discuss strategies. If you have a Representative, the Representative should answer the Agent’s questions.
- Be prepared, so that the meeting does not result in a more-in-depth audit.
- Make sure that the Auditor is contacted if you are not in agreement with the examination report.
- Try to reach a compromise if you don’t agree with the tax liability.
- Make sure that you are aware of all your Rights as a Taxpayer.
- Don’t Lie.
- Remember that you can always Appeal the Audit Result.
Don’t be a victim of your own making. If you receive an I.R.S. Letter of Examination or Inquiry, please call your Tax Specialist immediately.
By Stanley Foodman CPA for TYT
Foodman CPAs and Advisors
* 1201 Brickell Avenue * Suite 610 * Miami, Florida 33131
Tel 305 365 1111 * Fax 305 365 2244 *www.foodmanpa.com*
Stanley I. Foodman is CEO of Foodman CPAs & Advisors in Miami, Florida and a recognized forensic accountant and litigation support practitioner. Specializing in complex domestic and international tax matters, he has served as an expert witness and forensic accountant for some of the nation’s most challenging, high-profile economic crime cases. He and his team of accountants also assist clients with a full range of accounting matters including compliance, voluntary disclosure, corporate and individual taxation, family law litigation, estate and trust tax and wealth planning. Consistently ranked as one of the top accounting firms in South Florida, Foodman CPAs & Advisors assists clients locally, nationally and internationally.
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