by Fresh Start Tax | Feb 20, 2019 | Tax Help
Former IRS Agents Explain the IRS Tax Audit process.
As a former IRS agent I’ve read many articles on what IRS tends to do during a tax audit but unless you work the system and understand what the system is you cannot accurately tell people or explain to the people what IRS plans to do tax audits.
The Internal Revenue Service must follow the guidelines of their internal revenue manual.
In this case in a section 4 4.19.11.2.1.1 lays the outline clearly out.
This section clearly spells out what the Internal Revenue Service agent should do in working your case.
They do have a great deal of flexibility but IRS must have a base plan for auditing tax returns.
After years and years of collected IRS data, the Internal Revenue Service knows the items that provide revenue dollars for rates of return on an IRS tax audit.
Let the following be your guide to the items that IRS typically looks at during an IRS audit
As the Internal Revenue Service gets a tax return for an audit it generally has a DIF score or discriminatory index function score.
Usually it is attached and there will be a classification plan sheet regarding the items that IRS has flagged for auditor review.
After the manager or the agent look at the tax returns they can add or subtract to that classification sheet and move and then plan to forward with the tax audit.
As a general rule, the auditor has the ability to go back two years possibly three and ask for the current year tax return to be filed if they think it has audit potential.
The more experience agents pretty much have their way with tax returns and can do what they want with the audit. Many times a good Practitioner can manage the tax audit hoping that the IRS will not go back before but just audit the given year.
Generally, the IRS selects classifiers who have a broad-based experience in knowledge of the tax laws and current procedure. They use their best judgment and experience to decide what this classification needs to be so they can proceed with the audit and collect the most dollars for the Internal Revenue Service.
It is is important to remember that IRS in fact is a business.
IRS does measure the amount of time spent on every case and they looks at net income per return.
IRS generally looks at items they generally find provable results through other tax returns.
The Tax Return Process
Each tax return that is sent into Internal Revenue Service will have a keypunch operator pension all key items on a return those key items are gross income, adjusted gross income and line items from exemptions and deductions in other audit items that IRS usually dig from.
So basically every item is placed into a computer and the return is scanned based on a certain logarithm formulas to find out which tax returns should be audited because certain flags are present due to falling out of the national norms. The national norms are key factors.
Here is a list of items that the Internal Revenue Service will generally take a close look at because they have found in the past they produce revenue dollars. This is the base list for their classification plan.
Medical Expenses:
The Classifier must consider overall medical, dental etc., expense in relation to the AGI. IRS has a keen sense to what makes sense. If you understand what the available income that a person has to spend, it doesn’t take long to figure out whether they can pay the given expenses that are left, so the income ratio to expense ratio must make good common sense.
High medical expenses for large families, deceased taxpayers, or older taxpayers are usually not productive.
Interest Expenses:
Productive issues could come from payments to individuals, and closing costs on real estate transactions.
Home mortgage interest usually is unproductive unless the payments were made to an individual or if interest is a result of a mortgage greater than the indebtedness limit.
Charitable Contributions:
The agent will check for large donations made to any charitable organization are usually looked at. the auditor always checks to make sure the contributions do not represent tuition, a common trick by taxpayers.
Check for large donations of property other than cash.
Contributions in the form of donated clothing articles, furniture or a car can be worked by correspondence exam. However, if the issue selected involves obtaining appraisals or engineering reports or are complex in nature, it should be classified for field exam to work.
Consider the ratio of the contribution to the taxpayer’s total positive income.
Casualty or Theft Loss:
The agent will select cases that show no insurance reimbursement.
The IRS will watch for business assets, valuation methods and statutory limitations.
Miscellaneous Deductions:
IRS will scrutinize large, unusual or questionable items that do not correspond to the taxpayer’s occupation or income level.Select issues that are verifiable in a correspondence audit, such as union dues paid, work clothes etc.
Pension and/or Annuity:
The agent will check whether the taxpayer received a premature distribution from a pension/profit-sharing plan.Also they will ensure that the amounts are not reported elsewhere on the return. Check whether the distribution qualified as a lump sum distribution.
Unreported Income:
IRS will consider if the income reported on the return is sufficient to support the exemptions and deductions claimed.
IRS must consider the sources of income and any omission of income. Compare income on return to the IRP documents, if available.
If the taxpayer lists his/her occupation as waiter, cab driver, porter, beautician, etc., unreported tip income is a productive issue.
IRS will consider excluded amounts from income such as injury or sick pay, forgiveness of debt, and disability pay.
Moving Expenses:
IRS will check to see if the taxpayer actually moved via IRS research on addresses.
Check for employer reimbursement. Also consider sale of the residence.
Alimony Deductions:
IRS will check to see if the social security number is a valid number.
Also, they will check to see if the recipient has included this income. Credits: Consider the various credits found on the return jointly with other issues selected on the return.
TAX CREDITS
In the last couple years many unscrupulous tax preparers have been putting on returns tax credits that the taxpayer was never qualified for.
IRS started putting many filters in place because they had paid billions and billions of dollars back to taxpayers who never qualified for the credit. So there is a credit warning make sure you qualify.
They charged much larger fees and promised bigger refunds. some actually collected a percentage of the refund that went back to the taxpayer which usually is a sure sign of fraud.
So the IRS now has many filters in place to check all available credits.
Here is a list of the credits that the IRS will look at closely.
Credits include:
EITC
Child Tax Credit
Child and Dependent Care Credit
Education Tax Credits – Hope and Lifetime Learning
Premium Tax Credits
Qualified Adoption Credits
Keep in mind this is not a comprehensive list but a base list of what items on your tax return IRS will typically audit.
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by Fresh Start Tax | Feb 20, 2019 | Tax Help
The state of Florida, Department of Revenue, Sales/Use Tax Division is on the warpath against cash businesses. Do Not Be Intimidated, Fight Back Now!
We are a local South Florida tax firm that has been practicing since 1982 and are A+ rated by the Better Business Bureau.
We are the affordable tax experts for any and all state of Florida Department of revenue sales/use tax audits or appellate issues.
The state of Florida loves cash businesses. they figure that that’s where the most cheating goes on and they figure their greatest rate of return on sales and use tax audits come from cash businesses so they have dedicated teams of people to go out in audit certain cash businesses.
If you have received a Florida tax audit notice for sales or use tax and need affordable tax defense, we are the cash business experts.
As former IRS agents and government agents we know what they look for we know how they handle the cases and we know what your best tax defenses are.
Do not be suckered in or be bullied into the Florida Department of revenue.
Many times the Florida Department of revenue takes advantage of many unsuspecting businesses through intimidation and scare tactics.
Fight back by using former agents who know the system and are not bullied. also, do not be scared because you deal in cash. it is legal and is not against the law.
Also a big no-no, if you have received a self audit notice from the state of Florida Department of revenue do not send that in it is a trap.
What to Expect from a Florida Sales/Use Tax Audit
The Florida Department of Revenue audits businesses to find out whether state taxes were collected, reported, and paid correctly.
Although an audit is an enforcement tool to monitor and evaluate tax compliance, it can also be educational and promote voluntary compliance.
During an audit, the Department can help businesses identify and correct bookkeeping problems that could cause additional tax liabilities.
Audits may not always result in an assessment of additional tax, penalty or interest. The auditor may adjust a credit carryover or correct distribution without assessing additional tax. The auditor may even determine that a refund is due.
How Was I Selected for an Audit?
The methods of audit selection vary by tax. Some examples of sources used for audit selection are:
• Internal Revenue Service (IRS) information
• Information sharing programs with other states and state agencies
• Computer-based random selection
• Analysis of Florida tax return information
When notified of the Department’s intent to audit, you will be informed as to what records you will need to provide.
The types of records needed may include, but are not limited to:
• General ledgers and journals
• Cash receipt and disbursement journals
• Purchase and sales journals
• Sales tax exemption or resale certificates
• Florida tax returns
• Federal tax returns
• Depreciation schedules
• Property records
• Other documentation to verify amounts entered on tax returns
You must keep your records for three years for auditing purposes.
The Department may also audit for periods longer than three years if you did not file a return or payment, or filed a return or payment that was substantially incorrect.
After the audit is complete, you may review the audit findings and proposed changes. The auditor will give you a copy of the work papers and explain your rights, including deadlines for filing protests.
If you agree with the audit findings, you are expected to pay the amount due in full, if any. You have the right to protest the proposed changes if you disagree with them.
After the Notice of Intent to Audit Books and Records is issued, the auditor will work with you to set a date to begin the audit. The auditor will give you deadlines for providing information or documentation.
If you need additional time to prepare, or need to request a delay for other reasons, contact the auditor. The auditor will make every effort to accommodate your requests.
If you fail to respond or provide the requested information, the Department may issue an assessment and file a warrant based on the best available information.
Florida Tax Audit + Florida Department of Revenue, Sales/Use Tax + CASH BUSINESSES EXPERTS + Ft.Lauderdale, Miami
by Fresh Start Tax | Feb 20, 2019 | Tax Help
IRS Tax Audit Defense – Protect Yourself Affordable Let Former IRS Agents be your best tax defense. Since 1982, Affordable
You go to your mailbox and there it is, a nasty gram!
Everyone fears the dreaded letter from the IRS. You open it up and it is some of the worst news possible, ” you have been selected for a tax audit for years……….
There are ways you can protect yourself from a IRS Tax Audit.
As Former IRS Agents, Managers and Instructors we have discovered ways for the average taxpayer to keep themselves from a IRS tax audit.
When you retain our firm you’ll never have to speak to IRS.
As former IRS agents, managers and teaching instructors we know all the IRS systems, and the methodologies, and the best way to settle your tax case for the lowest amount possible.
When dealing with the IRS the key making sure we can provide the very best tax defense, make sure the IRS will not dig into other years and if you’re going to owe money, work out a plan or a settlement at the same time.
How to Protect Yourself From An IRS Audit
1. Have your tax return prepared by a reliable tax return preparer. If your preparer promises large refunds without asking to see the proper records for deductions and credits, you know that you will be audited after the return has been filed.
When your tax return preparer deducts items that should have not been deducted, you’re the one who will be audited and you will be required to pay the additional tax, interest and penalties.
If the IRS believes that your tax return preparer is incompetent or deducts large non-existent deductions, all of the returns prepared by that return preparer will more likely be selected for audit.
You do not want a tax return preparer who promises you the largest refund, but a tax return preparer who will compute the correct tax. It is recommended that you hire a tax return preparer who knows the tax law and who deducts items on the tax return that you can properly document.
Don’t forget you are ultimately responsible for the additional tax, interest and penalties.
2. File all your required tax returns by the due date. If you haven’t filed your tax returns, the IRS will eventually audit on you.
By not filing your tax returns timely, the IRS will assess the failure to file penalty at 5% per month up to 25% of the tax. If the IRS determines that your failure to file was attributable to fraud, the penalty will be 15% per month up to 75% of the tax.
Thus, you are always better off filing the tax return by the due date, even if you don’t have the funds to pay the tax because you will not be assessed the failure to file penalties.
3. Report all of your income shown on the Form 1099’s that you have received. Even if you don’t receive a 1099, you still have to report all of your income. If you file your tax return without reporting all of your income, you are risking an audit. If the IRS audits your tax return and finds omitted income, you will be assessed tax on the omitted income plus interest on the tax computed from the due date of the tax return to the date that the tax is paid.
Then, the IRS will apply the 20% accuracy related penalty or the 75% fraud penalty on the additional tax plus the interest on the penalties computed from the due date of the tax return to the date that it is paid.
4. Don’t deduct an office in a home. To qualify for an office in a home deduction, you must use the office for work and it must be your primary place of business. Most taxpayer’s abuse this deduction.
Unless, your office in the home is your primary place of business, don’t take this deduction. Further, let’s say that you properly documented that you used 15% of your residence for business, when you sell the residence, the IRS will correctly argue that 15% of the gain from the sale is taxable income. This will create unintentional tax liability on your part. Unless you have a compelling reason to take this deduction, stay away from it.
5. Don’t deduct a large Sch C loss, unless you truly have a loss. A large Sch C loss means that your business deductions exceeded your income from the activity.
The IRS will be questioning you on the source of the funds to pay for those excess deductions. You will need to document sources of the non-taxable income to pay for that loss. If you sold assets to fund the loss, you will need to document those sales.
The possible sources of the non-table income would include loans, gifts and inheritances. These sources will have to be documented to the IRS, if requested by them.
The documentation would include copies of checks, closing papers, gift tax returns of the person who made the gifts and estate tax returns for inherited funds.
6. Don’t deduct a loss from a business activity that the IRS can classify as a hobby loss, unless you have the documentation for that loss.
If you deduct a loss from a horse racing, dog racing, car racing, a boat chartering activity or any other activity that is fun; the IRS will ask you to prove that the activity is engaged for profit.
Thus, you should have a separate bank account for these activities and a business plan on how you expect to make a profit from the activity. You will need to show valid business projections.
7. When you deduct donations of property to a charitable organization, you need to have the required documentation that will always include a valid appraisal. Only deduct what you actually donated to the charitable organizations and can verify with copies of cancelled checks.
8. When you deduct a casualty loss, you need the proper documentation for the deduction. The documentation will always include an appraisal of the property before and after the casualty.
The amount reimbursed by insurance for the casualty. You will also need to prove your adjusted basis in the property before the casualty.
If you have a theft loss, make sure that you report the theft to the police and obtain a police report for the incident.
9. You should always be prepared for an audit by having in your possession all of the documents needed to verify the items shown on your tax return even before it is ever audited.
You do not want to search for the verification after your tax return has been selected for audit by the IRS.
10. If you are selected for a tax audit, call Fresh Start Tax LLC to ensure the best possible results.
Protect yourself from a IRS tax audit.
Have Fresh Start Tax LLC prepare your next tax return.
Expert IRS TAX AUDIT DEFENSE + Boca Raton, Palm Beaches, Pompano, Deerfield, Delray, Boynton Beaches
by Fresh Start Tax | Feb 20, 2019 | Tax Help
The state of Florida, Department of Revenue, Sales/Use Tax Division is on the warpath against cash businesses. Do Not Be Intimidated, Fight Back Now! A plus Rated BBB
We are the affordable tax experts for any and all state of Florida Department of revenue sales/use tax audits or appellate issues.
Do not be suckered in or be bullied into the Florida Department of revenue. Many times the Florida Department of revenue takes advantage of many unsuspecting businesses through intimidation and scare tactics.
Fight back by using former agents who know the system and are not bullied. also, do not be scared because you deal in cash. it is legal and is not against the law.
Gas Stations, Convenience Stores,Used Car Dealerships + Sales Tax audits by Florida Department of Revenue
The state of Florida sales tax is hitting our gas station and convenience stores because of unreported cash income.
They find easy targets because they find people dealing in cash scared of the government. But you should not be scared because when you receive cash you still have many expenses.
The state of Florida sales tax is concentrating on these industries and seems to be spending a lot of time in the Miami area.
What sales tax is currently doing is taking gross revenues and saying that 85% is taxable and adding penalties and interest without looking at any records or real numbers.
If this happens to you contact us today as we are what are your best source for state of Florida sales tax defense.
The state of Florida sales tax is doing this to streamline their processes and hoping that some people would bite to scared to answer the Department of revenue sales tax division
Do not be scared of the state of Florida sales tax audit contact former agents who know the system.
Also, a big no-no, if you have received a self- audit notice from the state of Florida Department of revenue do not send that in it is a trap.
What to Expect from a Florida Sales/Use Tax Audit
The Florida Department of Revenue audits businesses to find out whether state taxes were collected, reported, and paid correctly.
Although an audit is an enforcement tool to monitor and evaluate tax compliance, it can also be educational and promote voluntary compliance.
During an audit, the Department can help businesses identify and correct bookkeeping problems that could cause additional tax liabilities.
Audits may not always result in an assessment of additional tax, penalty or interest.
The auditor may adjust a credit carryover or correct distribution without assessing additional tax. The auditor may even determine that a refund is due.
How Were You Selected for an Audit?
The methods of audit selection vary by tax. Some examples of sources used for audit selection are:
• Internal Revenue Service (IRS) information
• Information sharing programs with other states and state agencies
• Computer-based random selection
• Analysis of Florida tax return information
When notified of the Department’s intent to audit, you will be informed as to what records you will need to provide.
The types of records needed may include, but are not limited to:
• General ledgers and journals
• Cash receipt and disbursement journals
• Purchase and sales journals
• Sales tax exemption or resale certificates
• Florida tax returns
• Federal tax returns
• Depreciation schedules
• Property records
• Other documentation to verify amounts entered on tax returns
You must keep your records for three years for auditing purposes.
The Department may also audit for periods longer than three years if you did not file a return or payment, or filed a return or payment that was substantially incorrect.
After the audit is complete, you may review the audit findings and proposed changes. The auditor will give you a copy of the work papers and explain your rights, including deadlines for filing protests.
If you agree with the audit findings, you are expected to pay the amount due in full, if any. You have the right to protest the proposed changes if you disagree with them.
After the Notice of Intent to Audit Books and Records is issued, the auditor will work with you to set a date to begin the audit. The auditor will give you deadlines for providing information or documentation.
If you need additional time to prepare, or need to request a delay for other reasons, contact the auditor.
The auditor will make every effort to accommodate your requests.
If you fail to respond or provide the requested information, the Department may issue an assessment and file a warrant based on the best available information.
Sales and Use Tax Audit Services – CASH BUSINESS Experts = Florida Sales Tax Expert Audit Defense
by Fresh Start Tax | Feb 20, 2019 | Tax Help
The state of Florida, Department of Revenue, Sales/Use Tax Division is on the warpath against cash businesses. Do Not Be Intimidated, Fight Back Now! A plus Rated BBB
We are a local South Florida tax firm that has been practicing since 1982 and are A+ rated by the Better Business Bureau.
We are the affordable tax experts for any and all state of Florida Department of revenue sales/use tax audits or appellate issues.
Do not be suckered in or be bullied into the Florida Department of revenue. Many times the Florida Department of revenue takes advantage of many unsuspecting businesses through intimidation and scare tactics.
Fight back by using former agents who know the system and are not bullied. also, do not be scared because you deal in cash. it is legal and is not against the law.
Gas Stations, Convenience Stores, Sales Tax audits by Florida Department of Revenue
The state of Florida sales tax is hitting our gas station and convenience stores because of unreported cash income.
They find easy targets because they find people dealing in cash scared of the government. But you should not be scared because when you receive cash you still have many expenses.
The state of Florida sales tax is concentrating on these industries and seems to be spending a lot of time in the Miami area.
What sales tax is currently doing is taking gross revenues and saying that 85% is taxable and adding penalties and interest without looking at any records or real numbers.
If this happens to you contact us today as we are what are your best source for state of Florida sales tax defense.
The state of Florida sales tax is doing this to streamline their processes and hoping that some people would bite to scared to answer the Department of revenue sales tax division
Do not be scared of the state of Florida sales tax audit contact former agents who know the system.
Also, a big no-no, if you have received a self- audit notice from the state of Florida Department of revenue do not send that in it is a trap.
What to Expect from a Florida Sales/Use Tax Audit
The Florida Department of Revenue audits businesses to find out whether state taxes were collected, reported, and paid correctly.
Although an audit is an enforcement tool to monitor and evaluate tax compliance, it can also be educational and promote voluntary compliance.
During an audit, the Department can help businesses identify and correct bookkeeping problems that could cause additional tax liabilities.
Audits may not always result in an assessment of additional tax, penalty or interest.
The auditor may adjust a credit carryover or correct distribution without assessing additional tax. The auditor may even determine that a refund is due.
How Was I Selected for an Audit?
The methods of audit selection vary by tax. Some examples of sources used for audit selection are:
• Internal Revenue Service (IRS) information
• Information sharing programs with other states and state agencies
• Computer-based random selection
• Analysis of Florida tax return information
When notified of the Department’s intent to audit, you will be informed as to what records you will need to provide.
The types of records needed may include, but are not limited to:
• General ledgers and journals
• Cash receipt and disbursement journals
• Purchase and sales journals
• Sales tax exemption or resale certificates
• Florida tax returns
• Federal tax returns
• Depreciation schedules
• Property records
• Other documentation to verify amounts entered on tax returns
You must keep your records for three years for auditing purposes.
The Department may also audit for periods longer than three years if you did not file a return or payment, or filed a return or payment that was substantially incorrect.
After the audit is complete, you may review the audit findings and proposed changes. The auditor will give you a copy of the work papers and explain your rights, including deadlines for filing protests.
If you agree with the audit findings, you are expected to pay the amount due in full, if any. You have the right to protest the proposed changes if you disagree with them.
After the Notice of Intent to Audit Books and Records is issued, the auditor will work with you to set a date to begin the audit. The auditor will give you deadlines for providing information or documentation.
If you need additional time to prepare, or need to request a delay for other reasons, contact the auditor.
The auditor will make every effort to accommodate your requests.
If you fail to respond or provide the requested information, the Department may issue an assessment and file a warrant based on the best available information.
Florida Department of Revenue Audit Defense | Former Agents Since 1982
