IRS & State Sales Tax Audits Help – Former IRS, Attorneys
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How the process works:
The Examination (Audit) Process
The IRS examines (audits) tax returns to verify that the tax reported is correct.
Selecting a return for a IRS or Sales Tax Examination does not always suggest that the taxpayer has either made an error or been dishonest.
In fact, in some rare cases some tax examinations result in a refund to the taxpayer or acceptance of the return without change. These are called NC or no changed
The majority of taxpayers files returns and make payments timely and accurately. Taxpayers have a right to expect fair and efficient tax administration from the IRS, including verification that taxes are correctly reported and paid with enforcement actions against those who fail to comply voluntarily.
Taxpayer Rights to all Tax Audits both Federal And State
The IRS and the State of California trains its employees, representatives and auditors to explain and protect taxpayers’ rights throughout their contacts with taxpayers.
These tax rights include:
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A right to professional and courteous treatment by IRS employees.
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A right to privacy and confidentiality about tax matters.
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A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
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A right to representation, by oneself or an authorized representative.
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A right to appeal disagreements, both within the IRS, the State and before the courts.
How IRS and State of California Sales Tax Returns Are Selected for a Tax Examination
They are selected using a variety of methods:
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Potential participants in abusive tax avoidance transactions — 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.
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Computer Scoring — Some returns are selected for examination on the basis of computer scoring. Computer programs give each return numeric “scores”. The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns. The Unreported Income DIF (UIDIF) score rates the return for the potential of unreported income. IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.
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Large Corporations — The IRS and the State examines many large corporate returns annually.
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Information Matching — Some returns are examined because payer reports, such as Forms W-2 from employers or Form 1099 interest statements from banks, do not match the income reported on the tax return.
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Related Examinations — 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.
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Other — Area offices may identify returns for examination in connection with local compliance projects. These projects require higher level management approval and deal with areas such as local compliance initiatives.
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