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Tag Archive for irs audit

Tax Court In Brief: IRS Examination Of Joint Tax Returns

Tax Court In Brief: IRS Examination Of Joint Tax Returns

Martin v. Comm’r, T.C. Memo. 2021-35 | March 24, 2021 | Holmes, J. | Dkt. No. 10115-15

Short Summary:  The IRS examined the taxpayers’ 2009 and 2010 joint income tax returns.  After the exam concluded, the IRS issued a notice of deficiency determining the taxpayer had unreported income.  In addition, the notice of deficiency denied certain losses from prior years, disallowed certain deductions related to taxpayer-husband’s business, and determined that penalties were appropriate.

Key Issue:

  • Whether the taxpayers had additional, unreported income; were permitted to claim certain deductions; and were liable for the late-filing penalty and the accuracy-related penalty?

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Tax Court In Brief: What Happened When Tax Return Preparer Assisted Clients In Creating New Entity As S Corporation

Tax Court In Brief: What Happened When Tax Return Preparer Assisted Clients In Creating New Entity As S Corporation

Bailey v. Commissioner, T.C. Memo. 2021-55 | May 10, 2021, | Pugh, J. | Dkt. No. 5477-14

Short Summary

Mr. Bailey working as an unenrolled tax return preparer assisted clients (Uwe Zink and Gary Skuro) in creating a new entity, Interradiology, Inc. (Interradiology) organized under the laws of Arizona and elected to be treated as an S corporation for Federal tax purposes in 2017. Therefore, Mr. Bailey prepared and filed Forms 1120S, U.S. Income Tax Return for an S Corporation, for Interradiology for tax years 2007 through 2012. Also, he held 10% of the shares of Interradiology during the tax year 2008 and 20% during tax years 2009 through 2012.

Mr. Bailey prepared and filed petitioners’ Forms 1040, U.S. Individual Income Tax Return, for the years in issue. He timely filed their 2008 and 2012 Forms 1040, but he untimely filed their 2009, 2010, and 2011 Forms 1040 on March 9, 2011, November 29, 2011, and February 19, 2013, respectively. The 2010 and 2011 returns both reported tax due, which the IRS assessed before the issuance of the notices of deficiency for those years.

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National Taxpayer Advocate Interactive Map: What Happens When You Are Audited

National Taxpayer Advocate Interactive Map

The Taxpayer Advocate Service (TAS) reintroduces its website with a new design and layout featuring a new digitally interactive Taxpayer Roadmap.

The digital Taxpayer Roadmap features an interactive experience which allows taxpayers and tax professionals to navigate through the IRS tax process and view notices along the way. The newly designed website continues to provide valuable information and resources to taxpayers and tax practitioners that can help them resolve tax problems with the IRS, including the “Get Help” section with its more than 50 common tax-related topics available to help citizens understand and, in many cases, resolve general tax issues.

The new TAS website is an important public tax resource. The updated site focuses on what taxpayers need to know, including their rights as a taxpayer.

National Taxpayer Advocate

10 Documents You Will Need For An IRS Tax Audit: Do Not Be Afraid!

Venar Ayar

It’s a nice breezy day. You pick your mail up, excited because that vintage Captain America comic you ordered came in today. But, alas, instead of nerding out all afternoon, you find yourself under the covers, stressing out over a fast-approaching audit of tax your returns. Receiving a tax audit notification in the mail can be a jarring experience, especially if you spend weekends embezzling a buck or two. Fret not, for a tax audit isn’t a death sentence. In fact, if you generally avoid criminal activity, you’ll probably be fine. Okay, you’ll be fine.

What is a tax audit?

A tax audit is a formal examination into your tax returns by the IRS to either verify information or uncover fraud or inaccurate tax returns. The IRS conducts these examinations both randomly and on purpose. If they decide to investigate your financial records randomly, they will just take a closer look to verify that all the information provided is correct. However, if the IRS suspects that there are any errors or that you weren’t entirely truthful while filing your returns, they will come at you with all they’ve got. Hard.

Audit notification letters are mailed for a couple of reasons:

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2017 IRS Data Book Shows Chances Of Being Audited

The IRS has published the 2017 version of its annual IRS Data Book, which contains statistical information about the IRS and taxpayer activities during the previous year. The IRS Data Book helps illustrate the breadth and complexity of the U.S. tax system. According to the Data Book, during fiscal year 2017 (Oct. 1, 2016 to Sept. 30, 2017), the IRS collected overall more than US$ 3.4 trillion from taxpayers, processed more than 245 million tax returns and other forms, and issued more than $436 billion in tax refunds.

The IRS also audited almost 1.1 million tax returns during fiscal year 2017.  Almost 90% of the audited returns were individual income tax returns. While the percentage of overall returns audited was relatively low at 0.5% overall, the percentages were significantly higher for two types of taxpayers – wealthy individuals and individuals filing international returns. Read more

IRS Audit Rates Continue Downward Spiral

For years, IRS audit rates have been declining as Congress has cut the IRS budget and its workforce has shrunk. The agency has relapsed its audit statistics for 2017, which marked the sixth consecutive year that audit rates have gone down.

The number of people audited by the IRS in 2016 dropped to just over 1 million. The last time so few people were audited was 2004. Since then, the U.S. has added about 30 million people. Read more

Am I At Risk For Being Audited?

Even though some IRS audits are chosen at random, there are a few factors that could put Texas taxpayers at an increased risk.

Taxpayers in Texas may understandably have a fear of being audited. After all, an Internal Revenue Service audit may be incredibly time-consuming and end in the consumer having to pay money to the government. However, that is not always the case. Read more

Your Worst Nightmare: An IRS Audit

Your business is growing and you are prospering. Business is good. Life is good. Then the unbelievable happens, which turns your world upside down and pushes you into pure panic.

This panic mode is instantly brought on by receipt of an IRS audit letter.

Most of us don’t fear something exploding or catching on fire as much as we fear an IRS audit. Of course, the best way to survive a tax audit and even to come out of it successfully is not to panic, but to prepare.

Take it seriously.

Even though IRS audits are fairly routine events, they should be taken with the utmost Read more

Would Your Beauty Salon Business Survive An IRS Worker Classification Audit?

I do not know of any business owner who wants to be audited by the IRS or their state tax authority. Audits can be simply random as “decided” by the IRS computer, or they can be triggered by certain characteristics of your business operation, for example how you’ve classified independent contractors or employees (especially if they apply for unemployment insurance, worker’s compensation benefits, or even welfare).

Do You Operate A Beauty Salon?

Here are three key items the IRS and state tax authorities look for if you are an independent contractor or if you use them in your business.

1. Is there a lease between the independent contractor and the owner? Read more

3 Strategies For Getting Out Of IRS Audits

When faced with an IRS audit, an effective strategy can be the key to obtaining a favorable outcome for the taxpayer. Early in the audit process, the taxpayer or his or her qualified representative should consider the policy against repetitive examination, the IRS policy on reopening examinations, and the various statutes of limitations that apply to examination of the taxpayer’s records and books.

1. The IRS Policy Concerning Repetitive Examinations

An initial consideration is whether or not the taxpayer’s audit violates the IRS’s policy against repetitive examinations. The policy against repetitive examinations applies when the taxpayer has been audited in the past two years, and the audits resulted in essentially no change. If you are a taxpayer who has been audited once in the past two years and Read more

Zip It During A Tax Audit

TaxConnections Picture - Zipped Mouth ShutIf you chose to represent yourself in an Internal Revenue Service Examination realize the IRS Revenue Agent (RA) or Tax Compliance Officer (TCO) assigned to your file is trained very thoroughly to advocate on behalf of the United States Government. One method used quite often is to create a (false) sense of security in the personal interview setting or even on the phone with cathartic yet repetitive narratives. This is done in my humble opinion to lull you into a sense of complacency which subsequently if not held in check leads to providing responses way beyond the scope of the audit matters in question. More importantly when you talk too much you are creating opportunity for the RA or TCO to potentially broaden the authority of the audit should you happen to say something inadvertently that could appear circumspect.

When it comes to the actual audit process:

1. Recognize the IRS RA or TCO assigned your file is a person too who is just trying to do their job of advocating as aggressively as allowed by law on behalf of the US government and resist the urge to posture aggressively in response as it accomplishes very little to nothing and is generally futile. Most RAs and TCOs are reasonable and I’ll even go out on a limb saying that there even a few that are outstanding which can be a sincere blessing. If however you get an IRS RA or TCO that is a unilateral jackass – they do exist – this is where you need to focus on internalizing emotions and recognize you can request a different examiner. Read more

It Has Been QUITE A Tax Season! A Review Of IRS Activity

According to the newly released 2012 IRS Data Book, the IRS collected almost $2.5 trillion in federal revenue and processed 237 million returns, of which almost 145 million were filed electronically. Out of the 146 million individual income tax returns filed, almost 81 percent were e-filed. More than 120 million individual income tax return filers received a tax refund, which totaled almost $322.7 billion. On average, the IRS spent 48 cents to collect $100 in tax revenue during the fiscal year, the lowest cost since 2008.

The IRS examined just under one percent of all tax returns filed and about one percent of all individual income tax returns during fiscal year 2012.  Of the 1.5 million individual tax returns examined, nearly 54,000 resulted in additional refunds.

An electronic version of the 2012 IRS Data Book can also be found on the Tax Stats and the following are some highlights worth noting.

In FY 2012, IRS initiated 5,125 criminal investigations.

In FY 2012, the IRS closed 60,793 applications for tax-exempt status and other determinations. Of those, the IRS approved tax-exempt status for 52,615 organizations. In FY 2012, the IRS recognized more than 1.6 million tax-exempt organizations and nonexempt charitable trusts.

In Fiscal Year 2012, General Counsel received 31,295 Tax Court cases involving a taxpayer contesting an IRS determination that he or she owed additional tax.

IRS workforce and the resources that the IRS spends to collect taxes and assist taxpayers. In Fiscal Year (FY) 2012, the IRS collected more than $2.5 trillion, incurring a cost of 48 cents, on average, to collect $100.

IRS’s actual expenditures in FY 2012 was less than $12.1 billion, which was used to meet the requirements of its three core operating appropriation budget activities.

In FY 2012, the IRS employed a total workforce of 97,941, including part-time and seasonal employees.