IRS Mail Audits Facts – Representation by Former IRS – Audited by the IRS

by Fresh Start Tax | Oct 29, 2013 | IRS Tax Audit

The Internal Revenue Service (IRS) estimates that $235 billion of the $450 billion in taxes that should have been reported and paid on time but were not is caused by individuals underreporting their income tax liabilities.
An audit is one of the primary enforcement tools the IRS uses to address the noncompliance that contributes to the Tax Gap, and the cornerstone of the IRS audit efforts is the correspondence audit program.
In Fiscal Years 2008 through 2012, IRS statistics show it conducted almost 5.7 million correspondence audits and recommended approximately $40.4 billion in additional taxes.
In Fiscal Years 2008 through 2012, IRS statistics show that it conducted almost 5.7 million correspondence audits and, in the process, recommended approximately $40.4 billion in additional taxes.
This represents about 77 percent of all audits the IRS conducted of individual income tax returns and about 56 percent of the estimated $72.4 billion in recommended additional taxes resulting from those audits.
The responsibility for conducting correspondence audits rests largely with the IRS’s Small Business/Self‑Employed (SB/SE) Division, which handles complex individual tax returns, and its Wage and Investment Division, which handles simple tax returns filed by individuals reporting wages, interest, dividends, and other investment income.
In contrast to the more detailed and lengthy face-to-face audit at an IRS office or in the field at a taxpayer’s place of business, the correspondence audit process is less intrusive, more automated, and conducted by examiners who are trained to deal with less complex tax issues.
Because of its automated features and less complex tax issues, the correspondence audit process enables the IRS to reach more taxpayers at a lower cost.
The IRS currently conducts correspondence audits in approximately 37 program areas.
Regardless of the program, the audit process typically begins with the IRS mailing a computer‑generated letter from one of its campuses to a taxpayer.
The letter outlines the examination process, identifies;

• one or more items on the tax return being questioned, and
• requests supporting information to resolve the questionable items.

 
Once the requested information is returned, examiners review it to determine whether it resolves the questions.
If the questions can be sufficiently answered by the information provided, the audit is generally closed without any changes to the tax; if not, the taxpayer is sent a letter requesting more information or indicating a recommended change to the tax.
The taxpayer at this point can do one of the following:
· Agree with the examiner.
· Provide the examiner with clarifying information.
· Appeal the decision to the IRS’s Office of Appeals.
In instances where the taxpayer does not respond to IRS letters, the examiner’s recommended tax changes are assessed by default and the taxpayer will generally have to petition the court system to contest the assessment.
If you need help regarding an IRS mail audit  situation contact us today and you can speak directly to tax attorneys, certified Public accounts, former IRS agents managers and tax instructors.
We are a nationwide tax firm with an A+ rating by the Better Business Bureau and have been in practice since 1982.
 
 IRS Mail Audits Facts – Representation by Former IRS – Audited by the IRS

IRS Process for a Tax Audit Selection – Former IRS Audit Selection Agents

by Fresh Start Tax | Oct 24, 2013 | IRS Tax Audit

IRS Process for a Tax Audit Selection
The Internal Revenue Service examines (audits) tax returns to verify that the tax reported on the tax return is correct.
There is a very specific process to make sure tax returns that need to be audited get to specific IRS audit agents.They will either go to the office auditor or to the IRS revenue Agent.
Agents are taken from various  local offices and sent to the Service Center for this audit  grading detail. These IRS audit agents spend a week to two weeks on this detail. They come from various offices.
Each tax return that is filed with the Internal Revenue Service is graded by the IRS Cade 2 computer.
Tax Returns are selected for examination on the basis of the Discriminant Function System (DIF) score.
Each return is given a (DIF) score by a complex computer program based on past information obtained by the IRS from specific examination programs.
The higher the score, the more likely that the tax return will be subject to audit.
The specifics of the DIF score program is not public, but certain items appear to cause a return to be selected for examination, such as participating in a tax shelter, large charitable contributions, home office deductions, casualty losses, large travel and entertainment expenses, and Offshore,FBAR banking issues.
These are the tax deductions most likely subject to abuse by taxpayers. IRS knows exactly where to look.
Other returns are selected under the Unreported Income DIF (UIDIF) score.
This type of computer selection is based on the potential of the IRS finding unreported income on this type of selected tax return. The specifics of this method of selecting a tax return for unreported income are not public, but certain information appear to cause a return to be selected for examination.
Such information would include the occupation of the taxpayer and the type of business activity. potential exists as to omitted income.
After the tax return has been has been selected under the DIF and UIDIF program, the tax returns are manually screened by an IRS employee known as a “audit classifier “ in the Classification Section of an IRS Service Center.
This IRS tax audit classifier is usually an experienced office auditor or revenue agent.
When the auditor arrives to the IRS campus or Service Center they go to an appointed desk  to process tax returns for audit consideration. There are two piles of tax returns that await.
One pile is for office audits ( simpler cases ) the other pile for revenue agents for field audits.( complex cases, businesses, partnerships, corporations )
For office audits, the selecting agent at the service center will circle the issues that the IRS auditor needs to address, if the case is going to a revenue agent (field agent) they will point out the one issue that is sticking out like a sore thumb. A lot of the cases that go to field agents are the issues of gross receipts. From there the cases go out to each local office.
Each IRS audit agent receiving the case can also chose other issues.
They also will review any attachments to the return and consider other data that a computer cannot detect.
Tax Return Selection – Other Information

Some tax returns are selected at random as part of tax compliance studies to update and reformulate its basis for audit selection formulas (DIF score) and is called the TCMP (taxpayer compliance measurement program).
This is in-depth audit where every item on the tax return is examined and the examiner must fill out an extensive questionnaire concerning each audit and the results. Based on these findings, the audit selection formula is adjusted to make it better in selecting tax returns for examination.
Still other tax returns are selected because payer reports of income, such as W-2’s or Form 1099’s do not mach the income reported on the tax return.
Some returns are selected based on information obtained by the IRS through efforts to identify promoters and participants of abusive tax avoidance transactions.
Examples include information received from “John Doe” summonses issued to credit card companies and businesses and participant lists from promoters ordered by the courts to be turned over to the IRS. From this information, the IRS will perform third party requests to obtain additional information before starting the audit.
This type of audit will include the disclosure of foreign bank accounts and other sources of foreign income.
Other returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors whose returns were selected for examination.
If a partnership is examined, the partners will also be examined if the partnership is adjusted or the IRS wants to determine whether the partners are allowed the flow-thru losses. If a corporation is examined, the shareholders would also be examined to determine whether they received any distributions from the corporation.
Still other tax returns may be selected for examination based on newspaper articles, police arrests and grand jury investigations.
Newspaper articles might include information on an individual who embezzled funds from a client.
The embezzled funds are taxable income and more likely these funds were not included as income on the tax return.
A person may be arrested for narcotics and the police find cash on him.
Many times a state agency may report to the Internal Revenue Service.
This cash more likely than not represents omitted income. Finally, a person may be selected for audit because of an informant.
There is a federal program known as the IRS Whistle blower Office which pays money to people who blow the whistle on persons who fail to pay the tax that they owe.
If the IRS uses information provided by the whistle blower, it can award the whistle blower up to 30 percent of the additional tax, penalty and other amounts it collects. Thus, a person could be audited based on the information provided by a business acquaintance, relative or even your former spouse!
If you are to undergo an IRS tax audit and need help contact us today.
We are a full service tax firm that specializes in IRS tax audits.
We are comprised of tax attorneys, certified public accountants, and former IRS agents.
Call us for free initial tax consultation.