Know What The IRS Is Looking To Attack By The Type Of Audit Being Conducted

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The IRS randomly selects tax returns for audit each year. Depending on what deductions you’ve taken and other characteristics of your tax return, your tax return can have a higher probability of being selected for an audit.

Here’s what you need to know about IRS tax audits. There are three types of audits:

Correspondence Audit: This is the least severe type of audit. It involves the IRS sending a letter in the mail requesting more information about part of a tax return. For instance, the IRS may have questions regarding charitable deductions and request you send in receipts to substantiate your deduction. If you have the receipts or information it’s generally not an issue. If your tax return is legitimate and you have the data to back up any claims on your return, you may be able to handle the situation on your own. But if you don’t have the receipts or information, then you should hire a tax representation professional dealing with the IRS because you could face fines, penalties and interest if you end up owing money.

Office Audit: If the IRS has more questions about your return, then you’ll get a letter in the mail inviting you into an IRS office for the audit. The office audit is more serious, so you should always have a tax representation professional come with you or turn over the audit representation to him. A tax representation professional can gather information in advance of the meeting and make sure it is complete so that the office audit can be wrapped up with the IRS as quickly as possible. If the IRS still needs additional records, your representative can secure additional time to supply the missing information.

Field Audit: This is the most serious type of audit and involves the IRS agent visiting you at your home or your business. The reason the field audit is more serious is the IRS agentwill ask to see other things. The agent does not want to limit the audit to particular items.While there are much fewer field audits than office or correspondence audits, I wouldn’t let any client go into a field audit without representation. It’s the most serious level of audit. If they are coming out to you, they are looking for something.

If any part of your return worries you and the IRS is breathing down your neck, you should bring in a tax representation professional to help curb any worries or fines. Taxpayers have a tendency because they have no experience dealing with the IRS to say way too much, give away too much and admit too much. You don’t want to give the agent information the agent has not asked for.

Using a tax law firm to help with an audit can significantly increase your chances of getting a better outcome. Many times individuals don’t realize that audits can go both ways, you may actually end up being owed money after an audit. A tax law firm can analyze your situation and find the best approach to take in order to get the best outcome. The IRS actually prefers working with professional tax representatives because it makes their job easier and helps the process move along more efficiently, which can actually result in a more favorable decision.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people minimize or avoid adjustments from IRS audits. Working with a tax attorney is the best bet for minimizing adjustments that would create liability to the IRS.

Your CPA who prepared your tax return which has now been selected for audit, wants to represent you – why should you decline his offer and hire a tax attorney?

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We hear this question all the time.

CPA’s prepare tax returns and there are a lot of CPA’s and other tax professionals who are great in preparing tax returns.  A taxpayer will provide them with information and tax documents and a return will be generated for filing with the IRS.  This process I refer to as “compliance”.

But a tax attorney will focus on “representation” – meaning that the cases taken on by the attorney are when the IRS is questioning a return or making other civil inquiries or even criminal inquiries of a taxpayer.

A tax attorney being familiar with the “representation” aspect knows who to speak to at IRS and how to best present your case.  The tax attorney can also devote full attention to your attention at any time since the tax attorney’s workload is not jammed like the CPA’s workload during tax season who is busy with tax return preparation and more focused over meeting filing deadlines and therefore cannot provide the needed attention to your case.

Speaking of civil and criminal inquiries, a taxpayer who engages a tax attorney also gets the benefit of attorney-client privilege.  This benefit allows that taxpayer to freely discuss with his attorney any matters or issues without the threat of these communications being disclosed to the government or anyone else.  You do not get this level of privilege when represented by non-attorneys.

But I would have to say that the biggest factor is that with the tax attorney there is no conflict of interest.  The best way to explain this is by example – if a great defense is to rely on what the tax preparer did, do you think your tax preparer will put himself under the bus to save you from the IRS – chances are not.  A tax attorney who had no involvement in the preparation of your returns can make these arguments thus truly serving your best interests.

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles and California know exactly what to say and handle the IRS.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people avoid collection action by the IRS and State tax agencies. Working with a tax attorney in Los Angeles or elsewhere in California is the best bet for reducing or eliminating the amount you owe.

The Essential Records to Have for a Tax Audit

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If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

The Law Offices Of Jeffrey B. Kahn, P.C.  has seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Fairfield or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your attorney in advance of the audit, your attorney can review your documentation and determine if there are any gaps that need to be addressed. This will allow you to have in in-depth conversation with your IRS audit attorney.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.

The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people minimize or avoid adjustments from IRS audits. Working with a tax attorney is the best bet for minimizing adjustments that would create liability to the IRS.

Appealing the Results of a Tax Audit

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Every taxpayer who is being examined in a tax audit has the right to dispute the auditor’s final determination.  You do not have to accept the auditor’s findings if you believe any or all of the adjustments are wrong and/or penalties should not be imposed.  Your best bet is to contact a California tax attorney who can effectively start the appeals process. Many people who have lost an IRS audit have seen the amount they owe in taxes reduced or even eliminated after hiring a tax lawyer in San Diego or elsewhere to help with them challenge the auditor’s decision.

Once the auditor issues the final determination, you have up to 30 days to file an appeal with the IRS. By working with a tax attorney, an effective and complete written protest letter is prepared and filed with the IRS Office Of Appeals challenging the determination. The IRS Office Of Appeals is a division of IRS that is separate from the Examination Division that performed your initial audit. This is done to ensure a level of transparency and fairness during the appeals process.  Within the next few months the IRS Office Of Appeals will notice you and your representative that the appeal as been assigned to an Appeals Officer.

The appeals process can be complex especially when the issues involve the correct interpretation and application of sometimes archaic tax provisions.  Therefore, you want to make sure you are prepared for your appeals hearing in order to secure the most favorable result. This includes collecting all of your relevant tax records and information ahead of time. You’ll also want to try and get as much information about the original tax audit as possible. You can file a Freedom of Information Act request on the auditor’s records — this will let you know the information they based their original decision on.

Even if your appeal has been denied or you disagree with the decision of the Appeals Officer, you are not out of options. The Law Offices Of Jeffrey B. Kahn, P.C. can help you to file a Petition in Tax Court to get the amount you owe reduced or eliminated. Many people who have lost their appeal have had the amount of their tax debt lowered by disputing the proposed adjustments in Tax Court.

The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people appeal their tax audit. Working with a tax attorney is the best bet for reducing or eliminating the amount you owe.

Avoiding Penalties Through the First Time Abate Policy

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Taxpayers who are facing a potentially large IRS penalty for late or unpaid taxes may be eligible for relief through the First Time Abate policy. This provides an opportunity for people who have fallen behind to become current on their tax obligations while eliminating any penalties from a previous tax issue. The First Time Abate program allows a person to work with an IRS attorney to relieve the stress in their lives.

In order to qualify for the First Time Abate program, a taxpayer needs to have not had a previous delinquency with the IRS. You will want to work with an income tax attorney to determine if your case qualifies for the First Time Abate policy, as not all types of tax filings are eligible to have penalties waived. Examples of event filings that could qualify include:

  • Form 706 U.S. Estate Tax Returns
  • Form 709 United States Gift Tax Returns
  • Form 1120 U.S. Corporation Income Tax Returns

You’ll need to be current with your taxes in order to be eligible to have your penalties waived through the First Time Abate policy. This means that if you have taxes that aren’t fully paid off but you are on a payment plan negotiated between your tax attorney in San Jose and the IRS, you can still qualify.

The First Time Abate policy gives you a second chance at resolving a tax problem. If you are facing penalties but can’t prove “reasonable cause” that you can’t afford the penalties, the Law Offices Of Jeffrey B. Kahn, P.C. believes you should consider the First Time Abate policy.

Amending a Filing Will Not Trigger an Audit

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There is a common belief that if you amend your tax return, you are raising a red flag for an IRS tax lawyer to trigger a review of your return. In fact, many people won’t correct an incorrect, previously-filed

tax return because they are afraid of a potential audit. This is the wrong approach to take. The Law Offices Of Jeffrey B. Kahn, P.C. urges you to correct any errors on past tax returns in order to avoid potential problems in the future.

The reality is that you won’t trigger an audit by amending a previous tax return. If the IRS did this, it would be a major deterrent for taxpayers to correct mistakes or update previous tax filings with new information. The IRS wants people to pay the right amount in taxes and not overpay or underpay. Allowing taxpayers the chance to work with an Orange County tax lawyer to amend their previous filings makes sense for the IRS as well as taxpayers.

An amended tax filing will go through the same audit review process as any other filing. If you are concerned about how a change in your filing status might impact an audit review, make sure to provide a detailed description of why you are changing your filing status on your Form 1040X.

Not only will you not automatically trigger a tax audit by amending your tax return, you may leave yourself open to serious issues in the future if you don’t correct a tax filing. Not correcting a filing can be viewed similarly as willingly making a false tax filing and could open you up for major consequences that require a criminal tax attorney.

Avoiding Increases in Taxes in Audits on Art Appraisals

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Whether you are dealing with art given to you as a gift, or art you inherited as part of an estate or art that you are giving as a charitable donation, there are plenty of potential tax implications. An experienced tax attorney can help you avoid potential tax problems that can arise where there is no art appraisal or there is an incorrectly performed appraisal.

When does the IRS order its own art appraisals? The IRS requires that its own Art Advisory Panel appraise any artwork reported by a taxpayer with a claimed value of more than $50,000.

Who is part of the Art Advisory Panel? You won’t find a tax lawyer on the Art Advisory Panel. Instead, it is made up of 25 different artists, art historians and museum curators who serve without compensation.

What about art with values below $50,000? For deductions claimed on art pieces with a value greater than $5,000, you need to receive a written deduction from a qualified art appraiser. For pieces with a value of between $5,000 and $20,000, the IRS also requires a photograph of the art along with the written appraisal.

How long should I keep a copy of the appraisal? The IRS can challenge any valuation of greater than $5,000 for up to four years after the initial filing, so the Law Offices Of Jeffrey B. Kahn, P.C. strongly recommends that you store copies of this information where you can retrieve it when needed.

Avoiding Increases in Taxes in IRS Audits over Your Charitable Giving

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Giving money or goods to a charity is admirable but it can also lead to headaches with the IRS if you don’t do it right. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. have dealt with many cases where charity donations being claimed incorrectly were picked up in tax audits and the IRS was looking to assess penalties. As a leading tax attorney in San Francisco, we can offer some tips that can help you to avoid potential problems down the road with a tax filing relating to your charitable giving.

Donating Clothes and Household Goods: One common issue that IRS tax attorneys see with charitable giving comes from donating clothes and household items. If you donate goods with a value of more than $250, you need to get an acknowledgement of the donation in writing from the charity.

Donating Money: If you make a donation of more than $250 to a charity, you need to receive a letter acknowledging this donation from the charity in order to claim a tax exemption. If your donation is under $250, you can either use this type of letter or a bank statement, canceled check or credit card statement as proof of the donation.

Eligible Donations: One of the major issues that an IRS agent will see as a red flag is claiming an ineligible donation. In order for your donation to be tax-deductible, the organization you give it to has to be a registered Exempt Organization.  Also, your charitable deduction cannot include the value of any benefits you received from the charity.  An example would be where you paid $200 to attend a charitable ball for which the charity states that the value of the ticket is $75.  In such an instance your charitable deduction would be $125.

Tips for Surviving a Small Business Tax Audit

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What small business owner would want to get audited by the IRS? Most business owners who receive notice that their business is selected for audit avoid the stress by hiring a criminal tax attorney or an IRS audit specialist attorney to represent the business. An experienced tax attorney knows how to prepare for the audit and can give you the confidence needed to get the best outcome.

The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people with the small business tax audits. Drawing from our experience of tax lawyers directly representing businesses in IRS audits, here are some valuable tips that can help any small business be ready for their date with the IRS:

Stick to the Relevant Facts: Don’t give lengthy explanations to questions from the auditor or start talking about things that aren’t relevant to what was asked. This will only give the auditor other potential avenues for discussions.

Listen to Your Representative: If you are working with a tax attorney lawyer or other professional, make sure you stick to their advice. After all, they have the experience you lack and won’t be intimidated by going through the auditing process.

Bring in the Right Documentation: Make sure that you have all of your receipts or tax records for the year you are being audited for in a system that makes them easy to refer to during the audit session. Don’t being in tax records or receipts from other years; this just opens you up to potential audits on these years as well.

Small Business Owners Can “Fast Track” Audit Process

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The Law Offices Of Jeffrey B. Kahn, P.C. has some news of particular interest to small business owners. The Internal Revenue Service has given small businesses a chance to expedite the audit process with its new Fast Track Settlement program. Under the terms of the program announced by the IRS in November 2013, small business owners can work with their IRS audit attorney to avoid the formal litigation or administrative appeal process. In most cases, the FTS program means that audit issues are taken care of within 60 days.

The Fast Track Settlement program is modeled on a program that has previously existed for medium-sized and large-sized businesses with more than $10 million in annual income. A pilot version of the program started in 2006 and was expanded in 2008 and the IRS is now extending it to all small business owners.

It’s important to keep in mind that the Fast Track Settlement program doesn’t guarantee a positive resolution to your dispute which is why you’ll still want to hire IRS tax attorneys who understand the regulations to fight on your behalf. But what this program offers is to speed up the entire process, saving small businesses from potentially lengthy and costly litigation.

Although the Fast Track Settlement is presided over by an IRS appeals officer who is supposed to be acting as a “neutral party”, that Appeals Officer will not be able to provide you with any guidance or advice.  Because of this, it’s a good idea to work with an experienced San Diego tax lawyer with the Law Offices Of Jeffrey B. Kahn, P.C. to represent you during this phase of the process.