Category Archives: Blog

How Does the IRS Select Returns for Audit?

Although the IRS does not have a set list of items that a return can be audited for, there are some general items that may make a return more likely to be audited.
  1. The IRS may audit or make an adjustment to a return when the information reported to the IRS by employers, banks, etc. does not match the information reported on the tax return
  2. One or more IRS “red flag” items are on a return:
    • Home office deduction
    • High itemized deductions
    • Multiple years of Schedule C losses
    • High auto or travel deductions
    • Rounded numbers on a return
  3. Large changes or fluctuations with a return from year to year.
  4. Audits of related returns. For instance, if your business is audited, your personal return may subsequently be audited based on changes made to the business return.
  5. Random selection. The IRS does audits for statistical purposes. These are done at random and generally require the taxpayer to substantiate all/most items on their tax returns.
  6. Possible tax fraud, tips to the IRS, or information reported from State or local compliance.

As a taxpayer, it is your responsibility to provide documentation and authority supporting the items and positions taken on your return. The IRS generally has three years from the date the return was filed to assess additional tax. However, that can be extended to 6 years in cases where more than 25% of the income was not reported, and indefinitely for a return where there is fraud.

It is important that you keep all of your records in a safe, dry place. It is also advisable to keep duplicate copies of records in different formats (electronic and print versions) and different locations in case one set gets destroyed. It is often very difficult and expensive to try to get prior years’ statements in the year of the audit in order to attempt to create your records.

If you are thinking about filing a return that has an item you believe may result in a future audit, you should contact a CPA or Tax Attorney prior to filing to ensure that you are taking a proper position on the return. If you later receive notice of audit, you should again contact a CPA or Tax Attorney to represent you before the auditor.

How to Protect Your OIC from Being Revoked

Congratulations!! Your Offer in Compromise (OIC) has been accepted by the IRS. Now that you have an accepted Offer, you must take steps to prevent it from being revoked.

Pay the Offer Amount by the Due Date
The amount of your offer generally must either be paid within five months of acceptance or under a 24 month payment plan. The exact details of your payment can be found on form 656. You must meet the payment terms of your Offer or it will be revoked. You should receive a letter confirming that the payment terms have been met.

Remain in Filing Compliance with the IRS
One condition of the Offer is that you must remain in filing compliance with the IRS for five years. This means that you must timely file all returns by the date they are due (or by the extension date if a valid extension has been filed). Failure to timely file your returns during this five year period may result in your Offer being revoked.

Not Accruing Additional Balances with the IRS
Once you have an accepted Offer, you cannot accrue any additional balances with the IRS. This includes any additional assessments on prior returns, as well as any new balances on future returns. If you file a new return and there is a balance, you must pay it in full with the return. Any unpaid, additional assessments may result in your OIC being revoked.

If you receive notice from the IRS that your Offer is at risk of being revoked, DO NOT IGNORE IT. You need to respond to the notice and take steps to correct the issue. If your OIC is revoked, all balances that were written off due to the Offer will be put back on your account, along with the additional interest and penalties.

To find out if you qualify for Offer in Compromise, please contact us at 877-829-2455 to schedule a initial consultation.

IRS Audit? We Can Help!

Have you recently received notice that the IRS is auditing your tax return? There are steps that you can take to help minimize or eliminate IRS adjustments to your returns.
Once you have received notice that the IRS is auditing your return(s), you should seek the assistance of a CPA or Tax Attorney right away. Audits generally require a large amount of data compiling and technical communication with the IRS. These are things best handled by a CPA or Tax Attorney. As a taxpayer, you are entitled to representation and are generally not required to meet directly with the auditor.
The audit letter should contain a list of items that the IRS is auditing. As the taxpayer, it is your responsibility to provide documentation supporting the items claimed on your return. Once you have the list of items that the auditor is looking for, you (or your CPA or Tax Attorney) need to start compiling the documentation to support each item. BE ORGANIZED! You will have much better results if you provide the IRS with organized and compiled data, instead of just providing them with a box of random receipts or documentation.

Generally, you should only provide the auditor with the information requested. However, if as you are going through your documentation you realize that you omitted a potential deduction from your return, you can also provide this information to the auditor to have that item added to the return.
When dealing with an auditor, it is important to remain courteous and professional at all times. As audits are generally very emotional and frustrating for taxpayers, this is another reason that you should seek the assistance of a CPA or Tax Attorney. Becoming hostile or unresponsive to an auditor can have a seriously negative impact on your audit. It is also important to remember that auditors are not your friend. Although you may not realize it, many of their questions are intended to elicit additional information that may be used against you in your audit.

IRS Tax audits are a serious event and if not handled properly can result in huge amounts of additional tax and penalties being assessed against a taxpayer. If you receive an audit notice, immediately contact a CPA or Tax Attorney for assistance in handling the audit.

 

Tax Help For Unfiled Tax Returns

There are many reasons why a taxpayer did not file a tax return. If you find yourself in a situation where you have unfiled federal tax returns, there are some important things that you need to know:

1) The IRS can file a return on your behalf. Employers and other entities report your tax information to the IRS. If you do not file a return, the IRS may file a return for you. However, this return will generally result in a much higher amount due as the IRS does not account for deductions such as dependents, filing status, and itemized deductions.

2) The statute on assessment does not start until a return is filed. In general, the IRS can assess additional balances for three years after a return has been filed. However, if the return is never filed, then the statute does not begin, leaving the tax return open to additional assessment indefinitely.
3) You are non-compliant with the IRS and cannot establish resolution on your account. In order to request a federal payment plan, currently non-collectable status, or an Offer in Compromise, you must be in compliance with the IRS. One condition of compliance is that you have filed all required returns. Until all returns are filed, you will not be able to establish resolution.
4) You may default any previously established resolution on your account. Not only do you need all of your returns filed to establish resolution on any outstanding balances, you also need to continue to file your returns in order to keep your resolution.
5) You may miss out on refunds. You must file a return within three years from the due date (including extensions) in order to be eligible to receive any refund that is due to you. If you do not file your return within this time frame, the IRS will not issue you your refund and they will not apply it against any other taxes you may owe.

If you have unfiled tax returns, you should seek tax help immediately. The sooner you file your returns, the sooner you can get your balances resolved and move forward with your life.

Tax Guide: How to Avoid a Tax Levy?

What’s the difference between levy and lien?

The IRS defines a levy as “a legal seizure of your property to satisfy a tax debt”. A levy can actually take property, like wages or money in the bank, to satisfy the tax debt. A tax lien is a claim used as security for the tax debt.

How the IRS issues a levy?

A levy will only be issued after three requirements are met:

  • The IRS assessed the tax and sent you a Notice and Demand for Payment;
  • You neglected or refused to pay the tax; and
  • The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A hearing (levy notice) at least 30 days before the levy.
  • Three Ways To Avoid IRS Levies

Usually, the IRS will start sending notices about six weeks after the taxpayer files a return with taxes owed on it. If the taxpayer neglects or refuses to pay the balance owed after receiving the last notice, a Final Notice of Intent to Levy, the IRS can levy the taxpayer’s income and assets including wages and bank accounts.

If taxpayers owe the taxes, there are several ways to avoid or remove the hammer of the IRS tax levy.How to avoid a levy?

1. Request a 120-Day Extension

One common solution is to request a 120-day extension to pay the balance in full and avoid a levy. Once you have made payment, the IRS will release the tax lien, if field, within 30 days, and automatically cancel the tax levy.

2. Request an Installment Agreement

If the taxpayer can’t pay in full with an extension, an installment agreement allows the taxpayer to make monthly payments. An IRS Installment Agreement is a program which allows individuals to pay tax debt in monthly payments, instead of paying their tax liability all at once. Once this is requested, the IRS will not issue a levy unless you default on this agreement.

3. Demonstrate Non-collectible Status

If a levy creates a evere financial hardship, you should contact the IRS to be placed in Currently Non-collectible (CNC) status. Under the Currently Non-collectible status the levy may be released. A CNC means that due to your current financial status the IRS is not going to collect from you.  The CNC sttaus is only tempoarary and can remove ny the IRS. The IRS will review your file periodically to determine if your collection status has changed.

4. File an Offer in Compromise
The OIC program is a collection alternative that settles a taxpayer’s debt for an amount less than what he owes, and suspends any levy actions. With an Offer in Compromise, the taxpayer is showing how much they can reasonably pay back to the IRS and how collectible they actually are. In order to qualify for this program, taxpayers must demonstrate that attempts to pay full would present an undue financial burden. It would be wise for taxpayers to seek professional advice before applying this program.

Contact us at (877) 829-2455 or schedule a initial consultation today.

IRS Tax Guide Time: “Where’s My Refund?”

IRS YouTube Videos
When Will I Get My Refund?

The Internal Revenue Service today reminded taxpayers that they can quickly check the status of their tax return and refund through “Where’s My Refund?”

This is the fifth in a series of 10 daily IRS tips called the Tax Time Guide. These tips are designed to help taxpayers navigate common tax issues as the April 15 deadline approaches. Continue reading →

How Long Does an Offer In Compromise Take?

The Offer In Compromise, or OIC, program with the IRS is a great option for many people and like many good things in life, it takes patience to earn.

Mr. Lothamer likes to describe the OIC as a “Mother may I” situation with the IRS. You are asking the IRS to settle your tax balance for less than what you owe, and they may accept that Offer if you qualify. Continue reading →

IRS Form 433-B: File the Form If Your Business Cannot Pay In Full

IRS Form 433-B, or Collection Information Statement for Business is used when a business owes federal taxes and cannot pay them in full. A person who owns his own business and owes taxes personally is required to fill out Form 433-B as well. Businesses including partnerships, corporations, and a limited liability company classified as a corporation can file the Form 433-B. This form provides information to the IRS in regards to the ability of the business to pay its federal tax liability. Continue reading →