Tax problems? I understand.
I solve serious tax problems every day.
Board Certified - Civil Trial Lawyer,
Texas Board of Legal Specialization
One Greenway Plaza
Suite 100
Houston, TX 77098
ph: 832-341-4599
fax: 713-561-3692
Even if you honestly believe your tax position is correct, meeting with the IRS can be a very intimidating experience and places the taxpayer at risk. Martha Stewart and Scooter Libby were not prosecuted for violating substantive laws; they were convicted of misleading the government. Nervous, over-eager audit victims frequently get themselves into deeper trouble by stating what they assume to be true, opening up new cans of worms and making simple mistakes that grossly aggravate their troubles. There are centuries-old reasons why our constitution protects us from overly zealous government officials by preserving our right against self-incrimination and the right to legal counsel. Don't waive these critically important safeguards to your freedom. Don't ignore the government but you don't have to face them alone and unprepared.
Do-it-yourself IRS combatants frequently miss out on affirmative defenses, exceptions and other opportunities for lowering their taxes and penalties. Valuable rights and defenses can be waived if they are not asserted timely and properly. The time away from your own business and family can make it especially burdensome.
You, the taxpayer, have the burden of proving that your return is accurate. The IRS does not have to disprove anything in a civil tax case. There is no presumption of innocence and ignorance of the law is no excuse.
1. Identify who the notice is from. The IRS? Your state tax authority? Examine its authenticity and that it correctly spells your name and lists your taxpayer ID number.
2. THE IRS DOES NOT SEND UNSOLICITED EMAILS and never requests credit card information and pin numbers through email. Persons receiving emails that claim to be from the IRS should not attempt to visit any site contained within the email and should forward the suspicious e-mail to phishing@irs.gov.
3. Check to see if it is a form letter. For example, it may be a notice of changes or actions that affect everyone in your state or tax bracket. A personalized letter, on the other hand, may require specialized attention.
4. Is a specific IRS employee's name and title included?
5. Does it require action?
6. Is there a mandate or deadline that requires you to act within a particular time frame?
7. If the inquiry can be resolved by sending copies of the supporting documents, this is usually the most cost-effective solution and resolves the majority of examinations. However, the IRS is losing many of its experienced employees to retirement and is hiring hordes of inexperienced newcomers. In our experience, sending the IRS proof of our clients' tax position, while necessary, often fails to persuade the IRS and a meeting between the tax professional and IRS becomes necessary.
We strongly recommend professional representation at this point.
8. IRS examiners are trained and experienced at subtly using pressure and intimidation to increase their audit results. They frequently place biased interpretations of taxpayers' unprepared explanations and incriminating statements in their audit report that come back to haunt the taxpayers if the matter is appealed or taken to court.
Which Deductions Are Likely to Be Challenged?
The IRS mandates that certain deductions must exceed a minimum percentage of your income before you can claim them. For example, medical deductions must exceed 7.5% of your income, and casualty loss deductions must exceed 10% before you can claim them. Only a small number of taxpayers qualify, so if you claim these deductions, keep careful records.
The IRS is also likely to look at your contributions to charity. If you deduct more than the IRS's statistical norms, you may be audited. You must have a receipt (not just a canceled check) for any single donation of $250 or more. If you do not have a receipt, the IRS may disallow the deduction. A home office deduction may also be questioned. If you deduct expenses related to a home office, that office must be used solely for business-related activities. You must also perform the majority of your business in that office. A doctor who uses a room at home to do bookkeeping would not qualify for a deduction because it is not his or her main place of business.
The IRS may also audit if they receive a tip that you are cheating on your tax returns.
Income Document Matching
IRS computers match all pertinent forms, such as 1099s, W-2s, and K-1s relating to your name and social security number to what you report on your tax return. If the numbers do not match your tax return, you will be audited. The audit could begin with a phone call, an in-person meeting, or simply a bill itemizing the additional taxes, interest, and penalties.
DIF Scoring
The IRS scores every tax return with a discriminate function (DIF) number. It is based on secret calculations they use to identify income tax returns with the highest likelihood of tax change on audit. The DIF score increases for various items, such as Schedule C or auto expenses, and decreases for other items (such as using a paid preparer). IRS classifiers review high DIF score tax returns and select which ones and which items will be audited.
IRS Special Projects
The IRS annually identifies The Dirty Dozen - 12 of the most blatant tax scams. They use this list to identify income tax returns they will audit. Here is a recent list: http://www.irs.gov/newsroom/article/0,,id=180075,00.html
Do NOT discuss substantive issues on the phone with the government or represent yourself in a face-to-face audit.
IRS Auditors are trained to get more information out of you than you are required to provide. They audit taxpayers every day.
Taxpayers frequently volunteer adverse information or inadvertently raise the IRS' suspicions.
You do not have to talk to the IRS auditors if you retain a qualified representative who is prepared to promptly respond to IRS requests.
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One Greenway Plaza
Suite 100
Houston, TX 77098
ph: 832-341-4599
fax: 713-561-3692