As Former IRS Agents we have worked thousands of cases since 1982. After 60 years of combined experienced we can tell by looking at a tax return whether or not that tax return will be pulled for a tax audit.
We can actually audit proof your tax return. 1-866-700-1040.
While this is not a comprehensive guide you will find some indicators of what the IRS will look for in pulling your tax return for audit.
It is always helpful to file and honest and accurate tax return, if you do, you have absolutely nothing to worry about.
General Information – How to Avoid an IRS Tax Audit of your tax return.
How your tax return is processed thru the IRS audit system.
You should know all tax returns are input into the IRS CADE 2 computer system. This is the beast of IRS responsible for the fall of many. We all serve the BEAST.
1. Each line item of your tax return is punched into this system, line item by line item. A boring but necessary job!
2. Each line item is keyed into the gross income and net income to find ratios and percentages.
3. A statical relationship between income and expenses or deductions is formed and indexed into a DIF score. Each and every tax return get a DIF score.
4. From there, each tax return is indexed and given a DIF number. The DIF number becomes a key component to a IRS tax audit. Your DIF score is placed on a label permanently attached to your tax return. ( DIF Discriminatory Index Function )
5. A IRS Agent then manually reviews each tax return pulled by the computer DIF score and decides whether to pull the tax return for a IRS audit.
6. The IRS then selects the highest graded DIF scores region by region. IRS can determine how many tax returns gets audited based on region, sections in the country and available budgets and agents to conduct tax audits.
IRS Flags for Tax Audits
IRS conduct TCMP audits. A TCMP is a random selected tax audit. The process works like this, IRS pulls every 10,000th tax return for a random audit. From these random tax audits IRS can determine areas of tax abuse. These audits are a true pain in the ass. Each item on the tax return must have documentation, bills and receipts. IRS goes so far to ask for birth certificates. Tax practitioners call these tax audit, the audits from hell.
IRS Matching Program.
IRS matches all W-2’s and 1099s up with tax returns. If you have failed to claim a W-2 or 1099, IRS will pull your tax return for audit. These audits usually take place 1 to 2 years after the filing of the tax return. IRS audits 1.4 million tax returns per year via the matching program. Many of these are conducted through the mail.
Market Specialization
IRS has a market specialization program in which specially trained agents are experts in fields. These IRS experts have studied and have incredible market expertise in these particular areas of business. These Market Specialization audits cover all major areas of business, industries and professional markets. These are usually long and extensive tax audits.
High Income – Personal and business
As your income goes up, so does the likelihood that you’ll be audited. If you make more than a million dollars, your chances of being audited are over seven times higher than if you make less than $200,000.
Self-Employment
If you own a business or work for yourself, there are lots of expenses you can deduct, like work-related entertainment, travel, and equipment. Because the line between business and personal use can be crossed so easily, self-employed taxpayers are targeted more frequently for an audit.
If you claim complex or unusual expenses on your return, it’s wise to provide an explanation before the IRS has to ring you up and ask for one. Submit a note with your return explaining why you have an unusual situation or are missing a particular tax form, for instance.
Cash Businesses.
Just a quick note here, if you have a cash business, IRS has formulas worked out to discern if you are claim enough cash. Call us for more details.
FBAR Cases
FBAR tax audits are on the rise.
After 3 years of the IRS demanding FBAR filings, the IRS collected 5 Billion Dollars through FBAR filing and FBAR audits.
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).
The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions.
The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.
If you have a FBAR tax audit, hire a tax attorney, no exceptions.
To avoid a IRS tax audit, file accurate tax returns.
Call us today 1-866-700-1040.
