The Value in Tax Audits
Nothing quite matches the level of fear that an American taxpayer has when he or she receives a letter of notice from the IRS about the start of an audit process. To protect your liberty and your financial interests to the fullest, you will want to have the strongest level of legal representation at your side.
What the IRS is Evaluating or why did I get audited?
Here are some of the most common things that IRS agents are trained to look for during business and personal audits.
If your tax returns report little income and a lot of deductions, yet you drive a really nice car and wear fancy clothes, IRS agents will dig deeper. The bottom line is, if your tax return doesn't seem to match up with your lifestyle, expect to get a lot of questions about your personal expenses.
A lot of small business owners fudge on mixed personal and business expenses, and the IRS knows this. If you've claimed a significant amount of entertainment, meals or vacation costs as business expenses, expect the IRS to be extremely skeptical. Just saying you took someone out to dinner for business doesn't cut it. The IRS will want some sort of documentation corroborating that the excursion was indeed business-related.
Many small business owners only have one car that they use for both personal and business trips. If you claim a lot of auto expenses as business-related, you'd better be able to back it up with mileage logs and receipts.
When you are filing your taxes each year, it's best to avoid listing expenses as miscellaneous, if possible. A significant amount of miscellaneous expenses is a red flag for the IRS because it indicates that either you keep poor records, you are sloppy, or you are hiding something.
If your business is largely cash driven, IRS agents are taught to assume that you are skimming or diverting money into your own pocket. Again, the better your receipts and logs are, the better off you'll be.
Many businesses hire what they call "independent contractors" to avoid paying payroll taxes, but those independent contractors are really employees. Expect extensive questioning about the role of these employees: who they answer to, who directs them, how much freedom they have, etc. If the IRS decides that your independent contractors are really employees, you will get hit with some serious back taxes and penalties.
if an IRS agent gets the impression that you simply "forgot" to report certain items as income (usually $10,000 or more), then you might be in very serious trouble. Purposefully not reporting income is criminal, and the IRS maintains a special criminal team that it uses during audits. If this ever happens, hire a specialist in tax audits immediately, remove yourself from the process and let the audit take its course.
If you are using employees rather than independent contractors, make sure that their payroll taxes are complete and accurate - the IRS will be double checking your payroll taxes to ensure that they match your claimed employees.
How we can help you when you face a tax audit?
If your return is chosen for audit or examination, or if you receive a notice from the IRS informing you of a tax assessment, you need to immediately enlist the help of a tax attorney so you can prepare. TIME IS OF THE ESSENCE. Most appeal rights will only be available to you for a short period of time.
You have to comply with many strict deadlines and guidelines during an IRS tax audit. All your documentation must be gathered and prepared in a manner that allows the IRS to easily examine it. The IRS audit process can be exhausting. However, if you obtain competent legal representation, your chances of owing less or no money to the IRS at the end of the audit process are much better than if you try to handle it yourself.
If you miss the deadlines and the tax is assessed, the IRS takes steps to collect. If this occurs, often your best option is to request an audit reconsideration. This application asks the IRS to take another look at the taxes that were assessed and reconsider whether you owe them. At Kootenai Law Group, PLLC we take pride in our successful track record of vigorously representing clients and doing our best to solve their tax problems.
If you face a tax audit by the IRS for any reason, you need an efficient tax lawyer who can advise you of your rights and represent you effectively before the IRS.
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