by Fresh Start Tax | Jul 22, 2020 | Tax Help
As a former IRS agent the number one question I am asked is, “why does IRS audit a tax return.” Its Your DIF Score. Understand the process, save off a IRS Tax Audit.
While there are variety of reasons the IRS audit tax returns, the chief reason is because of the DIF score. That stands for, Discriminate Index Function.
Every return filed goes through an numerical DIF audit and every return is rated,ranked, and scored by the IRS.
The DIF process is responsible for more IRS tax audits than any other of the IRS processes.
Each year more filters are added and it process becomes more deadly and brings a greater ROI.
So what is the” DIF ? ”, Discriminate Index Function
It is a mathematical technique used to classify income and expenses on tax returns as to successful IRS tax audit potential.
Under this concept, formulas are developed based on available data and are programmed into the computer to classify returns by assigning weights to certain basic return characteristics.
These weights are added together to obtain a composite score for each return processed. This score is used to rank the returns in numerical sequence (highest to lowest).
The higher the score, the higher the probability of significant tax change.
The highest scored returns are made available to IRS audit agent and eyeballed so see what tax returns have the greatest audit potential and bring to the field.
IRS has mandates on how many tax returns they audit based on examinations guidelines from the National office and expected revenue, so it only make sense the IRS plans to attack the low-hanging fruit.
What IRS says about the DIF Score
Its a computer scoring IRS audit.
Some returns are selected for examination on the basis of computer scoring. Computer programs give each return numeric “scores”.
The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns.
The Unreported Income DIF (UIDIF) score rates the return for the potential of unreported income.
IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.
More good info on the DIF Score.
The program takes into consideration your:
1.income,
2.the size of your family,
3.where you live, zip code,
4.how your money is earned,
5. expenses taken,
6. tax credit,
7, business income compered to business losses,
8.and key line items on your tax return.
There are about 22 filters IRS uses.
IRS has an algorithm it runs all returns through to see if a tax return has audit potential.
Your DIF score is far from the norm, BINGO, you win the nasty gram from the IRS.
If you know that your return has what we refer to as “red flags,” you need to be extraordinarily careful to keep accurate records and receipts.
Another interest of note, just because your tax return has a high DIF score does not necessarily mean that your tax return will be audited.
A human auditor will look at the return to confirm that this tax return has audit the potential.
IRS Audit Information
A key component in promoting the highest degree of voluntary compliance on the part of taxpayers is enforcement of the tax law. By pursuing those individuals and businesses who don’t comply with their tax obligations, the IRS is being fair to those who are compliant.
This helps promote public confidence in our tax system for all taxpayers.
The IRS enforces the tax law in a number of ways. The primary way is through the examination of tax returns that are identified as having the highest potential noncompliance.
This identification is determined using risk-based scoring mechanisms, data driven algorithms, third party information, whistle blowers and information provided by the taxpayer. The objective of an examination is to determine if income, expenses and credits are being reported accurately.
Types of IRS Tax Audit Examinations
IRS employees conduct examinations or audits in one of two ways. The first is by mail and are called correspondence examinations.
The second, called face-to-face examinations, take place in person at an IRS office or at the taxpayer’s place of business.
The complexity of the return determines whether the audit is by correspondence or in person. Certain individual non-business returns with low and medium adjusted gross income can be handled effectively by correspondence audit.
All other returns selected for examination are better handled either as an in-IRS office examination or at the taxpayer’s place of business.
IRS Tax Audit Correspondence Examinations
Correspondence examinations are performed at IRS campus locations by tax examiners, who are GS-5, 6, 7, or 8.
The IRS currently employs 969 tax examiners conducting correspondence examinations of simple individual Form 1040 returns. Generally, the questionable issues are EITC, additional child tax credit, American opportunity tax credit, medical expenses, contributions, taxes, or employee business expenses.
Tax examiners receive training on these issues but are not required to have accounting skills.
An additional 144 tax examiners conduct correspondence examinations of non-resident alien returns (Form 1040NR) focusing generally on withholding.
Correspondence examinations are less burdensome for taxpayers than in-person audits as they mail in their documentation and don’t have to travel in or take a day off from work to visit an IRS office.
They are also the most efficient use of IRS’ examination resources with a correspondence examination costs the IRS approximately $150. In FY 2018, the IRS conducted 75% of examinations by correspondence.
IRS Face-to-Face Examinations
Tax Compliance Officers (TCOs), who are GS-7, 9, and 11, conduct face-to-face examinations in IRS offices (sometimes called an “office audit”). The IRS currently employs 572 TCOs. TCOs receive more training than tax examiners and have some accounting training.
An audit by a TCO generally requires an in-office interview of the taxpayer but doesn’t require an on-site inspection of the taxpayer’s books, records, or assets.
The types of issues selected for an office audit are income from tips, pensions, annuities, rents, fellowships, scholarships, royalties, and income not subject to withholding; deductions for business related expenses; deductions for bad debts; determinations of basis of property; capital gain versus ordinary income determinations; and complex miscellaneous itemized deductions such as casualty and theft losses.
The most complex returns, which are certain individual, corporate, and partnership returns, are audited by a Revenue Agent (RA) at the taxpayer’s place of business. Revenue Agents are our most highly trained and experienced employees with substantial accounting skills and are GS-9, 11, 12, 13, and 14.
The IRS currently employs 6,463 RAs.
Their skills are required due to the complex business transactions of the taxpayer, more voluminous records, and extensive time required to complete the audit. In addition, the issues involved in a RA audit may require assistance from a specialist, such as an engineer, economist, or appraiser.
Since these are the most costly examinations conducted by the IRS, RAs are directed to the most egregious noncompliance areas.
These include high income, high wealth taxpayers, cash intensive businesses, transfer pricing, executive compensation, research and development credits, crypto currencies, as well as others.
BIG TIME KEY TAX TIP
If you’re submitting a tax return that you believe has red flags, attach the documentation to the return so when the auditor is looking at the return to score, the information is attached to shield off the audit.
Example:
A great example of this is if you tithe to a church and that tithe is well above the norm, actually enclose the statement and the check so when the auditor is looking at the tax return he can nix the tax audit.
by Fresh Start Tax | Jul 22, 2020 | Tax Help
As a former IRS agent the number one question I am asked is, “why does IRS audit a tax return.” Its Your DIF Score.
While there are variety of reasons the IRS audit tax returns, the chief reason is because of the DIF score. That stands for, Discriminate Index Function.
Every return filed goes through an numerical DIF audit and every return is rated,ranked, and scored by the IRS.
The DIF process is responsible for more IRS tax audits than any other of the IRS processes.
Each year more filters are added and it process becomes more deadly and brings a greater ROI.
So what is the” DIF ? ”, Discriminate Index Function
It is a mathematical technique used to classify income and expenses on tax returns as to successful IRS tax audit potential.
Under this concept, formulas are developed based on available data and are programmed into the computer to classify returns by assigning weights to certain basic return characteristics.
These weights are added together to obtain a composite score for each return processed. This score is used to rank the returns in numerical sequence (highest to lowest).
The higher the score, the higher the probability of significant tax change.
The highest scored returns are made available to IRS audit agent and eyeballed so see what tax returns have the greatest audit potential and bring to the field.
IRS has mandates on how many tax returns they audit based on examinations guidelines from the National office and expected revenue, so it only make sense the IRS plans to attack the low-hanging fruit.
What IRS says about the DIF Score
Its a computer scoring IRS audit.
Some returns are selected for examination on the basis of computer scoring. Computer programs give each return numeric “scores”.
The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns.
The Unreported Income DIF (UIDIF) score rates the return for the potential of unreported income.
IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.
More good info on the DIF Score.
The program takes into consideration your:
1.income,
2.the size of your family,
3.where you live, zip code,
4.how your money is earned,
5. expenses taken,
6. tax credit,
7, business income compered to business losses,
8.and key line items on your tax return.
There are about 22 filters IRS uses.
IRS has an algorithm it runs all returns through to see if a tax return has audit potential.
Your DIF score is far from the norm, BINGO, you win the nasty gram from the IRS.
If you know that your return has what we refer to as “red flags,” you need to be extraordinarily careful to keep accurate records and receipts.
Another interest of note, just because your tax return has a high DIF score does not necessarily mean that your tax return will be audited.
A human auditor will look at the return to confirm that this tax return has audit the potential.
BIG TIME KEY TAX TIP
If you’re submitting a tax return that you believe has red flags, attach the documentation to the return so when the auditor is looking at the return to score, the information is attached to shield off the audit.
Example:
A great example of this is if you tithe to a church and that tithe is well above the norm, actually enclose the statement and the check so when the auditor is looking at the tax return he can nix the tax audit.
by Fresh Start Tax | Jul 22, 2020 | Tax Help
As a former IRS agent the number one question I am asked is, “why does IRS audit a tax return.”
While there are variety of reasons the IRS audit tax returns, the chief reason is because of the DIF score.
That stands for, Discriminate Index Function.
Every return filed goes through an numerical DIF audit and every return is rated/ranked/scored by the Internal Revenue Service.
But the DIF process is responsible for more IRS tax audits than any other of the IRS processes.
Why you ask, this type of IRS tax audits get results.
Each year more filters are added and it process becomes more deadly and brings a greater ROI.
So what is the” DIF ? ”
Discriminate Index Function
It is a mathematical technique used to classify income and expenses on tax returns as to successful IRS tax audit potential.
Under this concept, formulas are developed based on available data and are programmed into the computer to classify returns by assigning weights to certain basic return characteristics.
These weights are added together to obtain a composite score for each return processed. This score is used to rank the returns in numerical sequence (highest to lowest).
The higher the score, the higher the probability of significant tax change.
The highest scored returns are made available to IRS audit agent and eyeballed so see what tax returns have the greatest audit potential and bring to the field.
IRS has mandates on how many tax returns they audit based on examinations guidelines from the National office and expected revenue, so it only make sense the IRS plans to attack the low-hanging fruit.
IRS commenting on the DIF process:
Its a computer scoring audit.
Some returns are selected for examination on the basis of computer scoring. Computer programs give each return numeric “scores”.
The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns.
The Unreported Income DIF (UIDIF) score rates the return for the potential of unreported income.
IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.
More good info on the DIF Score.
The program takes into consideration your:
1.income,
2.the size of your family,
3.where you live, zip code,
4.how your money is earned,
5. expenses taken,
6. tax credit,
7, business income compered to business losses,
8.and key line items on your tax return.
There are about 22 filters IRS uses.
IRS has an algorithm it runs all returns through to see if a tax return has audit potential.
Your DIF score is far from the norm, BINGO, you win the nasty gram from the IRS.
If you know that your return has what we refer to as “red flags,” you need to be extraordinarily careful to keep accurate records and receipts.
Another interest of note, just because your tax return has a high DIF score does not necessarily mean that your tax return will be audited.
A human auditor will look at the return to confirm that this tax return has audit the potential.
Big key tip
If you’re submitting a tax return that you believe has red flags, attach the documentation to the return so when the auditor is looking at the return to score, the information is attached to shield off the audit.
Example:
A great example of this is if you tithe to a church and that tithe is well above the norm, actually enclose the statement and the check so when the auditor is looking at the tax return he can nix the tax audit.
thats all folks
by Fresh Start Tax | Jul 21, 2020 | Tax Help
What is the IRS Trust Fund Penalty?
The Trust Fund Penalties is a business owners worst nightmare.
Many unsuspecting business owners get hit with the IRS trust fund penalty. Basically, if you do not pay your 941 taxes i.e. withholding and Social Security, the federal government has the right to impose those taxes you held in trust against you personally or any responsible persons of your corporate or entity responsible for the tax and thus collect the money from you on an individual basis.
Do not accept this penalty fight back.
It is also possible for the IRS to set up a payment agreement with you for your IRS corporate 941 taxes they can assert at the same time the trust fund penalty and collect those individually at the same time.
Most Trust fund cases involve officers of corporations.
However, a responsible person may be one or more of the following:
A. an officer or employee of a corporation
,
B. a member or employee of a partnership
,
C. a corporate director or shareholder,
D. a related controlling corporation,
E. employee of a sole proprietorship
,
F. limited liability company (LLC) member, manager or employee
,
G. a Payroll Service Provider (PSP)H. a responsible party within a PSP
,
I. a Professional Employer Organization (PEO)
,
J. a responsible party within a PEO,
K. a responsible party within the common law employer (client of PSP/PEO)
L. a lender, a surety, or any other person with sufficient control over funds to direct disbursement of the funds, or
,
M. in some cases, a person assuming control after accrual of the liability.
How does one become responsible? Through being willful
Definition of Willfulness
1. The trust fund recovery penalty is a civil penalty so the degree of willfulness in failing to collect or pay over any tax leading to liability for this penalty is not as great as that necessary for criminal proceedings.
This is a civil proceeding.
Willfulness in the context of the TFRP is defined as intentional, deliberate, voluntary, and knowing, as distinguished from accidental. “Willfulness” is the attitude of a responsible person who with free will or choice either intentionally disregards the law or is plainly indifferent to its requirements.
Some factors to consider when determining willfulness are:
a. Whether the responsible person had knowledge of a pattern of non-compliance at the time the delinquencies were accruing,
b. Whether the responsible person had received prior IRS notices indicating that employment tax returns have not been filed, or are inaccurate, or that employment taxes have not been paid,
c. The actions the responsible party has taken to ensure its Federal employment tax obligations have been met after becoming aware of the tax delinquencies.
How does IRS make there decision and who make them
A Revenue Officer like me back in the day will do that.
If the company does not provide IRS with bank signature cards and corporate resolutions, IRS simply issues at 2039 form SUMMONS for information from the banks or financial institution.
Each trust fund recovery penalty before goes to the system must have sufficient documentation and there’s a checklist that must be attached is the case moves forward.
There is a internal form 4183, that the IRS uses to make sure the revenue officer did their due diligence to support their decision on who are responsible officer was under 6672 of the IRC code.
It is not very difficult to find out who is responsible, like I said before just follow the money and that’s it!
The use of the IRS form 4180 is very critical investigation who determine business financial policy.It is on our company website.
The principal factor that the IRS considers when examining which individuals may or may not be liable for the TFRP is who signs company checks.
As we say in IRS, follow the money and you will find the responsible.
I am former IRS agent instructor & administered hundreds upon hundreds of trust fund recovery penalties and I am an IRS expert trust fund tax situations.
How do you find out if you are responsible for the trust fund penalty
The revenue officer working the case also and you IRS notice 2751 which breaks out the trust fund liability and a forum 1153 with your appellate rights.
It is always best to appeal your tax assessment.
You must take this serious because this becomes an individual assessment and IRS has their full enforcement powers to go ahead and collect these back taxes. This is just like owing individual taxes, bad news.
by Fresh Start Tax | Jul 20, 2020 | Tax Help
IRS Problems? I am a Local Sebring Resident and a specialists in all IRS Matters, Since 1982, Former IRS Agent.
I am a Sebring resident and a Former IRS Agent & Teaching Instructor. Contact me if you have an IRS problems or troubles Ask for Michael Sullivan, Former Fox and ABC tax commentator. Free Consults, hear the truth. Since 1982.
No matter what your tax troubles are, whether you owe back tax debt, haven’t filed back taxes, have payroll tax problems, going through an IRS tax audit, dealing with IRS notices letters, wage garnishments levies, and tax liens, call me today and hear your truth about your current situation. He can get IRS tax relief fast!
Owe IRS Tax Debt ?????
There are different Ways to Solve Owing Back IRS Debt Problems to get tax relief for back taxes.
We will also walk through all the IRS programs to see what you can qualify for.
If you have balance due on back taxes and are looking to set up a payment agreement, file firm offer in compromise to settle your back tax debt or you need to file back tax returns, call us today for a free initial tax consultation.
As a Former IRS Agent, I worked and taught the settlement programs at IRS.
We have worked out of the local, district, and regional tax offices of the Internal Revenue Service taught the offer in and non-filer programs.
How does IRS dispose of Tax Debt Cases?
The 5 ways or programs for IRS Tax Debt Relief are the following:
1. By Payment in full,
2. By monthly installment payments,
3. By the Acceptance of an offer in compromise, (this is how your completely eliminate the tax debt)
4. By statue expiration. (this is how your completely eliminate the tax debt)
5. For those who cannot pay their debt IRS has a non-collectible or hardship program.
Upon your initial free tax consultation we will walk through the various programs and let you know the easiest way to resolve your back tax debt.
The most important aspect of working tax debt cases is completely dependent on the individual or business financial statements. It is the most important factor.
Your current documented financial statement determines all.
IRS uses a very simple formula to determine their settlement process.
It is all about your assets and your income and your current necessary living expenses. There is a very specific formula.
IRS only allows certain expenses that are considered necessary living expenses.
There are charts available on what IRS allows. Anything not on those charts are disallowed and this is what trips out most taxpayers.
A simple review of your current financial statement and we can let you know the different programs you may be eligible for.
You will need to complete form 433F or form 433A for us to make a current determination. IRS will only use their financial statements.
It is critically important to know that you cannot pay less taxes unless you qualify for the offer in compromise program.
IRS has a very specific formula that they use to compute the offer in compromise.
The only way you can pay less tax is through the offer in compromise program. There is also an IRS pre-qualifier form.
I have over 40 years in this industry and it is critical if you want to settle your tax debt for the lowest possible amount you should go to true tax professionals.
All your tax returns will have to be filed before IRS will work your offer in compromise.
If you need help with your tax preparation call us and we can have a staff of Experts accountants and tax preparers complete all returns with or without records.
If you are a non-filer, no worries, we can fix that immediately
Also beware that many times the Internal Revenue Service want to make sure you are current in your withholding tax or your estimate tax payments are they will not close your work your case until you become fully compliant.
Beware of most IRS tax settlement services companies.
We have been in this industry a long time there are many good companies in as many bad tax settlement service companies. For you to evaluate in IRS tax settlement service company you must ask to speak directly to the person who will be working your case.
Generally, when you call a tax services company, you are speaking to what is called a closer. That person is a salesman and will actually bill you and charge you for the services then your case gets passed down the line.
When you call fresh start tax, you will speak directly to the person who works your case and that person can give you a true evaluation on how and if IRS will accept an IRS tax settlement .
Check out the BBB rating and make sure you have a true tax professional working your case.
I suggest you always hire someone who’s worked at the IRS because they are aware of the methodologies required to get your offer in compromise through the system.
Different ways to Solve Back IRS Tax Debt and get relief:
As a general rule, you may apply for hardships, payment agreements or settle for an offer in compromise to settle your debt for pennies on the dollar.
We will review with you your financial statement and let you know what the lowest possible settlement IRS will accept. 40% of all persons that owe back taxes are issue into a hardship or are currently not collectible status and 6.5 million taxpayers enter into annual payment agreements.
The other way to pay less tax is for the ten-year statute of limitation to run out and your debt will be written off by the Internal Revenue Service.
If you want to file an offer in compromise I thought you’d like to know what the statistics are.
Last year over 78,000 offers in compromise/IRS tax debt settlements were filed by taxpayers and over 38% of those were accepted for average of $6500 per case. Approximately 40,000 taxpayers last year paid less tax.
At the current time there are 7500 cases in the offer queue. The average wait time is nine months. There are not enough IRS employees to work the current inventory.
Keep in mind this is a national average in your case is completely dependent on your individual financial statement.
We will not file for an offer in compromise unless you are a true candidate for the program. You must qualify.
There is a pre qualifier tool to find out if you are a settlement candidate for income or business tax debt.
Upon your initial tax consultation we’ll let you know if you are eligible to have an accepted offer in compromise by the Internal Revenue Service.
Due to the new fresh start tax initiative Internal Revenue Service had made it easier to file for the program. However this program is not for everybody.
Everyone wants to settle with IRS but there is a very specific format and methodology that must be followed.
There are many myths about the pennies on the dollar program so you need to hear the truth before spending any money.
There are many firms that take your money and then let you know after the fact you are not qualified. you need to know before hand whether you have a fighting chance. Being a former IRS agent employee gives you a huge advantage of having the review your offer in compromise to settle your tax debt.
At our firm we will take no clients money until we are no they are a true candidate for the settlement program.
Call us today for free initial tax consultation and speak to a true IRS tax expert who will walk you through the process of how to negotiate with IRS over back taxes and see if you qualify to pay less taxes for an IRS tax settlement .954-328-3501
If you are looking for IRS tax relief, look for local tax experts.
Covering Lake Placid, Sebring, Avon Park.
