IRS Tax Audits – Tax Audit Defense – Why IRS Audits Tax Returns – Former IRS Audit Managers, Audit Representation

by Fresh Start Tax | Oct 2, 2012 | IRS Tax Audit, Tax Problem Help

There is nothing worse than a letter from the IRS saying your tax return is selected for a IRS tax audit. After a couple moments of catching your breathe you start thinking are there any skeletons on that tax return and the thought of what else will the IRS find rifles through your mind. Will IRS audit more tax years and how much is this going to cost me are questions most taxpayers process.

The question you must ask yourself is this, “who do I really want to represent me ?”

If your tax return got audited in the first place why did my tax practitioner allow that IRS audit to happen, do I really what that same person to represent me.

We are a specialty tax firm dealing primarily with IRS problems. We have over 206 years of professional tax experience and over 60 years working directly with the IRS in the local, district and regional offices of the IRS. We are one of the premier firms for Tax Audit Defense.

Call us today to get a IRS perspective on your tax audit. We have former IRS Agents, Managers and Instructors represent you for a tax audit.

So, why was your tax return audited? Here are some of the most likely reasons.

How Are Tax Returns Selected For Examination?

The Internal Revenue Service examines (audits) tax returns to verify that the tax reported on the tax return is correct.

Some 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. These are the deductions most likely subject to abuse by taxpayers.

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 returns has been has been selected under the DIF and UIDIF program, the tax returns are manually screened by an IRS employee known as a “classifier” in the Classification Section of an IRS Service Center.

This individual will review any attachments to the return and consider other data that a computer cannot detect. Finally, he will select the items on the tax return that will be examined.
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.

Thus, 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 others may be selected for examination based on newspaper articles, police arrests and grand jury investigations. A newspaper article 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. 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!