10 Strategies When Handling an IRS Audit
10 Strategies When Handling an IRS Audit
The IRS is using new technology to process tax returns and conduct tax audits. As more people are submitting returns through Electronic Filing, the IRS efficiency in processing returns is improving. They also have more data in their system to identify tax returns with non-compliance issues. The IRS will use new found technology for audit selection which will support the efforts to close the nation’s tax gap. The tax gap is the difference between what the taxpayers should have paid and what they actually paid on a timely basis. The most recently released numbers on the tax gap are in 2001 when the estimate was around a $290 billion short fall to the IRS.The current workload plans will combine results over a three-year period and will allow the IRS to update compliance estimates and develop more efficient workload plans on an annual basis.It is important to be properly prepared if you are chosen to be audited. If the IRS finds that there is no change to your tax liability in the audit, then you will not have to worry about being audited on the same issue for two years.
When there is no business location for an individual return the audit will take place at the IRS office. If the audit is for a business the IRS agent will most likely want to conduct it at the business, however the tax preparer’s office is the best location for the audit to take place. You will be able to best control information provided to the auditor when it is coming from your office.
3. Determine who will speak for the taxpayer.
IRS agents may turn any casual conversation against the taxpayer, so it is important that the taxpayer and auditor are not in direct communication with each other. In this way you are in charge of the information that is communicated between your client and the agent.
4. Ensure that all document requests will be in writing.
Make sure that the IRS agent understands that any document requests should be made in writing so that you will have enough time to gather the needed information to support deduction claims.
5. Questions and discussion of adjustments should not be negotiated until the final conference.
When you defer questions until the last meeting it puts you in a better position to negotiate as you will have a better understanding of the IRS audit and the information that is needed. It will also eliminate the possibility of an auditor conceding certain issues if they are pressed for time.
6. Agree to an Extension
If you have not gathered all of the information that is necessary for the audit, but think that you have access to it, agree to an extension. There are two types of extensions that you can request:
- Form 872- IRS limits the extension to issues only addressed on the form
- Form 872-a The IRS can keep all issues open
7. Refuse to Agree to an Extension
You do not have to agree to an extension if all of the issues have not been properly addressed by the IRS and you want to close the case. This will force the IRS auditor to issue a report. You can then either file a petition in the tax court or pay the tax and then file a petition with the court of claims.
8. Request Technical Advice
You can always request technical advice from the IRS national office if you feel that the IRS appeals officer will not compromise and that their position contradicts the national office. If the national office agrees with the inconsistency in opinions, than the appeals officer will have to follow the national office. If the national office does not agree with your claim, then you will have to continue onto the court system.
9. Negotiate
Make a settlement agreement that fairly resolves the case, as some areas in tax laws are subjective. In some multi-issue cases you may want to present a bottom line offer that may change depending on issues that arise later.
10. Consider filing an amended return or making a cash bond.
The best way to avoid IRS audits, is to simply work with your client to make sure that the tax return has no reason to be audited by the IRS. It is not often that IRS audits take place. In 2006, 1,293, 681 audits were conducted for individual returns, but the numbers are continuing to rise. Remember that preparation is one of the best defenses that you will have against any IRS audit.
—————————————————————————————————————————————————————————————————————
We hope you found this article about “10 Strategies When Handling an IRS Audit” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
To receive our free newsletter, contact us here.
Subscribe our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
How One of the World’s Wealthiest Individuals Avoided Taxes for Years
Many people are always complaining that the wealthy don’t pay their fair share in taxes. While that is an argument that will never end, it seems that one of the world’s richest men might be guilty. That’s because he was able to avoid paying taxes for more than 40 years. How is that possible? The…
Where Should You Call Home in Retirement?
Are you planning on retiring soon? There are a lot of things to consider and prepare for when you’re ready to call it quits and start enjoying the so-called “golden years,” especially when it comes to your financial future. One of the most important matters to take care of is how your taxes will affect…
Time Management Tips That Work
Time management tips that work are hard to come by and harder to apply in daily life. Consider for a moment, how valuable is your time? Having a good motor and using your time wisely can help you be happier and wealthier. Time is a resource First, recognize that time is a highly limited resource. …
Small Business Stocks Can Lead to Big Gains
What’s your investment strategy? There is no end to the number of different strategies that investors have, and there are plenty of different successful ways to invest in the stock market. Likewise, Wall Street is full of stories of investors that have ended up on the side of the road, kicked to the curb after…