by Fresh Start Tax | Sep 6, 2012 | IRS Tax Advice, IRS Tax Audit, IRS Tax Experts
Why are tax returns selected for a IRS tax audit?
The answer is a simple one. The IRS has guidelines and boundaries they have placed over the years and they can pretty well tell which tax returns will yield them IRS audit bucks.
I worked for the IRS for 10 plus years and it is easy to tell which tax returns the computer system will kick out for a IRS tax audit.
On staff at Fresh Start Tax LLC we have over 60 years of direct work experience in the local, district and regional offices of the IRS.
Reason Tax Returns are selected for a IRS tax audit.
There are many reasons tax returns are selected for audit and the one answer used across the board is a simple one, your tax return fell out of the national standard based on your Gross Income and line item inputs.
IRS keeps very close statistical numbers on what the national norms should be.These formulas are secret, kind of like the formula for Coca Cola.
Each tax return is coded into the IRS computer system by line items. If 5 or more of your line items run to high there is a good possibility that tax return will be bouncing out for a IRS tax audit.
Every tax return is graded and depending on the IRS budget, the IRS will audit those tax returns with the highest scores.
Different Types of IRS Tax Audits
1. The first type of tax audit is called the TCMP or the “audit from hell”.
IRS audits each and every line item on your tax return. IRS will randomly pull some 10,000 tax returns across the broad spectrum. The results from these audits are used by the IRS to compile statistical information that will be used to find areas of negligence.IRS will then target the highest area of abuse.
2. The second type of IRS audit and the most popular is the DIF.
This is the number one source of tax audits. Your tax return will be evaluated based on your “DIF” score, a set of IRS formulas known as the “Discriminate Function System.”
About 80% of all tax returns audited are selected by the DIF system which compares deductions, credits, and exemptions ( line items) with the norms for similar taxpayers in each income tax bracket.
3. Market Specialization Program.
These audits are the most popular type of business audit for larger corporations . IRS has trained agents in all walks of businesses. They have studied for hundreds of hours and have a complete understanding of the unique features of that particular business. An example of this is agriculture. Special trained IRS Agents will only audit the agriculture sector so they get to develop a market specialty in that area. IRS has a whole host of specialization programs.
4. High Dollar Cases
Although the overall individual audit rate is about 1.10%, the odds increase for higher income filers. IRS statistics show that people with incomes of $200,000 or higher had an audit rate of 3.87%, or one out of slightly more than every 25 returns.
If you make over one million dollars there’s a one-in-eight chance your return will be audited.
5. Matching programs of the IRS. ( W-2, 1099 )
The IRS gets copies of all 1099s and W-2s you receive from third parties. IRS computers match up the W-2’s and 1099’s with the income shown on your return. A mismatch sends up a flag and causes the IRS computers to send out a match audit letter. 1.4 million letters like this are sent out each year.
If you receive a 1099 or W-2 showing income that isn’t yours or listing incorrect income, get the issuer to file a correct form with the IRS immediately .
6.. Large Charitable Deductions.
IRS computers know what the average charitable donations should be for folks at your income level. IRS knows this is a area of great abuse. If you deduction falls out of the normal range expect a IRS audit letter. Many times we encourage taxpayers who have a large deduction to attach it to your tax return.
7. Claiming the home office deduction.
This is a huge target for the IRS. Many taxpayers feel their whole house should be written off and take liberties of adding many extras when taking this deduction. Be careful to only take what the law allows. Call us for more details.
7. Deducting Travel and Entertainment
Talk about abuse. IRS will ask for every receipt and complete documentation for travel and entertainment. They will want to know who you took and how that relates to future business income. Advice here, document, document, document.
8. Claiming 100% business for you vehicle.
Another favorite target of the IRS. Most taxpayer think the IRS auditor will never go over a auto log. Think again. Some agents live to review auto logs as boring as it sounds. They will compare your daily business with the travel log to make sure everything matches up.
9. Failing to report a Foreign Bank Account FBAR
With the breakthrough a UBS other governments and banks caved in to the US and turned over the names and the accounts for taxpayers with foreign bank accounts. After the first 3 years the Feds have collected over $5.5 billion. IRS will be on the prowl. 33,000 persons came forward and IRS knows this is just the tip of the iceberg.
10. Engaging in currency transactions
The IRS gets many reports of cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses, plus suspicious-activity reports from banks and disclosures of foreign accounts. Be careful not to play the $9500 game to avoid detection.
You can stay out of an IRS audit. Call us and allow us to audit proof your tax return. 1-866-700-1040
by Fresh Start Tax | Aug 22, 2012 | Income Tax Preparation, IRS Tax Advice, IRS Tax Experts
Former IRS Agents can definitely help and assist you to audit proof your tax return.
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After preparing, reviewing and auditing thousands of tax returns it is easy to spot a tax return that will be earmarked for a IRS tax audit.
There is several keys a trained eye will look for.
The basic rule, does the tax return makes sense? IRS when auditing a tax return will review bank statements, cost of living, financial statements and of course the tax return itself, there should be a common link with the aforementioned.
If you would like former IRS Agents to prepare your tax return and give you your very best chance to audit proof your tax return, call us today. 1-866-700-1040.
Miscellaneous Deductions:
If you are able to itemize your deductions on your tax return instead of claiming the standard deduction, you may be able to claim certain miscellaneous deductions.
A tax deduction reduces the amount of your taxable income and generally reduces the amount of taxes you may have to pay.
Here are some things you should know about miscellaneous tax deductions:
Deductions are subject to the 2 Percent Limit.
You can deduct the amount of certain miscellaneous expenses that exceed 2 percent of your adjusted gross income. Deductions subject to the 2 percent limit include:
a. Unreimbursed employee expenses.
Such as searching for a new job in the same profession, certain work clothes and uniforms, work tools, union dues, and work-related travel and transportation.
Tax preparation fees.
Other expenses that you pay to:
1.Produce or collect taxable income,
2.Manage, conserve, or maintain property held to produce taxable income, or
3.Determine, contest, pay, or claim a refund of any tax.
Examples of other expenses include certain investment fees and expenses, some legal fees, hobby expenses that are not more than your hobby income and rental fees for a safe deposit box if it is not used to store jewelry and other personal effects.
Deductions Not Subject to the 2 Percent Limit.
The list of deductions not subject to the 2 percent limit of adjusted gross income includes:
1. Casualty and theft losses from income-producing property such as damage or theft of stocks, bonds, gold, silver, vacant lots, and works of art.
2. Gambling losses up to the amount of gambling winnings.
3. Impairment-related work expenses of persons with disabilities.
4. Losses from Ponzi-type investment schemes.
5. Qualified miscellaneous deductions are reported on Schedule A, Itemized Deductions.
Keep tax records of your miscellaneous deductions to make it easier for you to prepare your tax return when the filing season arrives.
Income Tax Preparation – Former IRS Agents – Audit Proof your TAX RETURN – Get the most out of Miscellaneous Deductions
by Fresh Start Tax | Jul 4, 2012 | Back Taxes, Expatriate Tax, FBAR, IRS Tax Advice, Tax Lawyer, Tax Returns
At Last, a tax reprieve on foreign income reporting and filing your back tax returns, well maybe.
American that live abroad will get a reprieve from the IRS this year on reporting on foreign assets.
The IRS said it will allow some United States citizens, including dual citizens, who have not filed income tax returns or not disclosed their foreign bank accounts, to come forward without facing onerous penalties or the threat of prosecution.
This is what the IRS calls a tax amnesty of sorts.
The Internal Revenue Service said the reprieve, to begin Sept. 1, would also apply to U.S. expatriates with foreign retirement plans, including Canadian ones.
But read the fine print on this one! ( Only low risk compliance taxpayers are invited to this party )
The optional procedure just announced is available only to Americans who owe little or no back taxes, not to those who have squirreled away substantial amounts in secret offshore accounts that they have knowingly failed to disclose to the IRS.
This announcement is for small type of taxpayers.
If you are not sure what categorize you fall in you may want to call us for a no cost professional tax consultation. 1-866-700-1040.
The IRS statement said the new guidelines were for “low compliance risk” taxpayers, generally people who have simple returns and owe $1,500 or less in tax for any covered years. Yes, this is for the low end of taxpayers.
IRS is about to pound this area of non-compliance due to the very fact that the Offshore Program over the past years has brought in a kings ransom to the IRS, a whooping $4 Billion Large. IRS will not stop.
It also follows complaints by tax lawyers that many U.S. expatriates have been unaware of the new rules on tax returns and disclosure of foreign bank accounts.
IRS feels that many of these taxpayers were not willful tax evaders, but simply uninformed about filing returns and, if needed, disclosures known as Foreign Bank and Financial Account Reports, or FBARs.
Many taxpayers were just plain ignorant of the tax laws and the IRS does not intend to hurt this type of taxpayer.
The IRS said that under the new procedures, taxpayers would have to file delinquent tax returns for the past three years and delinquent FBARs for the past six years.
The IRS said “higher compliance risk” taxpayers would be subject to a more thorough review and, potentially, an audit or a referral to CI or Criminal Division Review.
The IRS also said taxpayers would be barred from the disclosure program if they challenged in foreign courts the disclosure of their accounts while failing to inform the U.S. Justice Department of such challenges.
You can expect the IRS to being a full court press from now on, they plan for bleed this Offshore Program for as much as it can.
As a result of the Obama-Care Program the IRS will be given $500 million for budgetary purposes.
You better attorney up if need be. If you are in full compliance no need to worry.
Call us for a free tax consult for tax advice.
We are staffed with Tax Attorneys, Tax Lawyers, CPA’s and Former IRS agents. 1-866-700-1040
by Fresh Start Tax | Apr 17, 2012 | IRS Penalties, IRS Tax Advice, Tax Lawyer
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Call us today at 1-866-700-1040 with your specific case and we will let you know the best way to abate, get rid of or remove IRS penalties and interest.
When it comes to filing your tax return, however, the law provides that the IRS can assess a penalty if you fail to file, fail to pay or both.
Failure to File, Failure to Pay:
Here are important points about the two different penalties you may face if you file or pay late.
1. If you do not file by the deadline or due date of the tax return, you will face a failure to file penalty.
If you do not pay by the due date, you could face a failure to pay penalty.
2. The failure-to-file penalty is generally more than the failure to pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. Always file your tax return timely. This is the highest penalty the IRS assesses.
3. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will cannot exceed 25 percent of your unpaid taxes. It therefore tops out at 25%. Interest is assessed on penalties as well.
4. Exception – If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
5. If you do not pay your taxes by the due date, you will generally have to pay a failure to pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
This penalty can be as much as 25 percent of your unpaid taxes. This penalty also tops out as well.
6. If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure to pay penalty if the remaining balance is paid by the extended due date.
7. If both the failure to file penalty and the failure to pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
See our website for a comprehensive list of reasonable causes for penalty abatement.
Call us today, 1-866-700-1040. On staff, Board Certified Tax Attorneys, CPA’s and Former IRS Agents.
by admin | Apr 4, 2012 | IRS Payment Plans, IRS Tax Advice, Representation, Tax Help
If you make estimated tax payments this is something you might want to read.
Most taxpayers that owe money to the IRS do so simply because they fail to make their estimate tax payments.
Since self employed individuals do not have withholding taken out of their checks, the ES or Estimated payments are the easiest and best way to make sure you do not have a large tax payment the end of the year.
You may need to pay estimated taxes to the IRS during the year if you have income that is not subject to withholding.
These tips from the IRS explain estimated taxes and how to pay them.
1. If you have income from sources such as self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, then you may have to pay estimated tax.
2. You must pay estimated taxes in 2012 if both of these statements apply:
1) You expect to owe at least $1,000 in tax after subtracting your tax withholding (if you have any) and tax credits, and
2) You expect your withholding and credits to be less than the smaller of 90 percent of your 2012 taxes or 100 percent of the tax on your 2011 return. Special rules apply for farmers, fishermen, certain household employers and certain higher income taxpayers.
3. For Sole Proprietors, Partners and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.
4. To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year.
You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, for this. You want to be as accurate as possible to avoid penalties. Also, consider changes in your situation and recent tax law changes.
5. The year is divided into four payment periods, or due dates, for estimated tax purposes. Those dates generally are April 15, June 15, Sept. 15 and Jan. 15 of the next or following year. Depends of holidays.
6. Form 1040-ES, Estimated Tax for Individuals, has everything you need to pay estimated taxes.
It includes instructions, worksheets, schedules and payment vouchers. However, the easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System, or EFTPS, at www.irs.gov. You can also pay estimated taxes by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.
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- Our staff has collectively over 205 years of Professional IRS Tax Representation Experience
- On staff, Board Certified Tax Attorney’s, IRS Tax Lawyers, Certified Public Accountants, Enrolled Agents,
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by admin | Mar 27, 2012 | IRS Penalties, IRS Tax Advice, IRS Tax Problem, Tax Help
IRS Penalty Tax Relief by Former IRS Agents and Managers – Call us today for details an immediate IRS tax representation.
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Tax Relief to Farmers Affected by MF Global Bankruptcy
The Internal Revenue Service announced today that it will provide penalty relief to farmers who incur estimated tax penalties because they did not timely receive Forms 1099 from MF Global or its court appointed trustee, and were unable to file their 2011 calendar year tax return by March 1, 2012.
The IRS also today provided the affected farmers with instructions on how to apply for this penalty relief. you can call our offices for details and representation requirements.
The Farming Industry
Usually farmers can avoid an estimated tax penalty if they file their returns and pay the full amount of tax shown on their return by March 1, 2012.
An individual is a farmer for these purposes if two-thirds of the individual’s total gross income for the taxable year or the preceding taxable year is from farming. This rule and the relief being provided also apply for fishermen.
MF Global filed for bankruptcy on Oct. 31, 2011, after revealing that hundreds of millions of dollars in customer money was missing.
While the court appointed trustees are working to untangle MF Global’s financial records, the IRS understands that the magnitude of the records and the associated untangling delayed the issuance of Forms 1099 in a timely manner.
Many former customers of MF Global did not receive their Forms 1099 by March 1, 2012 and the penalties are racking up.
While the IRS has been advised that former customers have recently received their 1099s, the delay in mailing the Forms 1099 may have affected the ability of many farmers to file their 2011 calendar year return by March 1, 2012.
If a taxpayer has an underpayment of estimated tax, all or part of the penalty for the underpayment may be waived if the IRS determines that the underpayment was due to a casualty, disaster or other unusual circumstance and it would be inequitable to impose the penalty.
To request a waiver of the estimated tax penalty, complete Form 2210-F, Underpayment of Estimated Tax by Farmers and Fisherman.
As stated in the instructions to Form 2210-F, a short statement should be attached to the form stating that you received a late 1099 from MF Global. At the top of your Form 2210-F, write “MF Global”. Taxpayers should be aware that the Form 2210-F and accompanying Form 1040 cannot be submitted electronically. In the case of farmers who have filed their tax returns and an estimated tax penalty is assessed, please contact the IRS, identify this relief and the penalty will be abated.
While this situation could possibly racking up thousands of dollars in penalties, let us get you tax relief today.
Call Fresh Start Tax, 1-866-700-1040. Speak directly to a tax expert.
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