Be Prepared Just In Case You Get Audited

Getting audited by the IRS is a hassle no one needs. So when you get the letter in the mail that an IRS agent is analyzing your tax returns, knowing what to expect to make the process run smoothly can lessen the pain.

The IRS selects audited taxpayers multiple ways. It can be completely random, due to mismatching documents, or the audited return was connected to another audited taxpayer, like a business partner.

An audit begins by getting an audit notice from the IRS in the mail. Notice can also come via telephone, but the IRS will usually send a confirmation letter.

After receiving the letter, the IRS agent should be contacted to schedule a meeting. You can also conduct the audit by mail. But be prepared.

You should know the details of your tax return like the back of your hand. Then, gather records and forms to support whatever the IRS is challenging. The IRS will indicate which records are needed.

After the IRS completes its audit, you’ll get a report outlining what the agent recommends and the amount you owe.

The IRS agent can then ask you to sign a form waiving your appeal rights. You can sign the waiver and pay the tax, or request an appeal with the IRS’s appellate division (but beware, the interest will accumulate during the appeal process).

If you’re one of the millions of taxpayers unlucky enough to get audited, you’re not alone. One out of every eight millionaires was audited in 2011 alone.

The IRS can initiate collection actions like wage garnishments or bank levies if you don’t pay your back tax debt. That’s why you’ll want to go with a tax attorney.

A tax attorney or tax professional can also ensure that the IRS doesn’t violate your rights. During an IRS audit you’re entitled to professional and courteous treatment, a private and confidential process, the right to know why the IRS is asking for your information and the consequences if it’s not provided, the right to appeal, and the right to hire a tax attorney.

A tax attorney can also help you obtain an IRS agreement that works in your favor. An IRS audit isn’t pleasant, but finally resolving your tax debt can be.

Criminals Use Others’ Social Security Numbers for Fake Refunds

Being a victim of identity theft can put you in a very frustrating situation. Not only can someone take out loans in your name and have you pay for it, they can also file a tax return with your Social Security number and get a refund worth thousands of dollars.

If you get a letter in the mail from the IRS stating that you filed more than one tax return or someone has already filed using your personal information, that’s a strong sign you’re a victim.

Other signs are IRS letters stating that you received wages from an employer you haven’t worked for, or you have a balance due, refund offset or have collection actions against you for a year you didn’t file.

The IRS recommends responding to any of these letters immediately. If you’re an identity theft victim in a non-tax manner, like with fraudulent lines of credit, the IRS recommends you contact the agency’s Identity Protection Specialized Unit at (800) 908-4490. You’ll also need to fill out Form 14039, the IRS Identity Theft Affidavit.

Identity theft tax fraud is soaring. The IRS stopped more than 260,000 fake identity theft returns from getting processed in 2011, with scammers trying to get a total of $1.5 billion. The previous year, the IRS stopped almost 50,000 fake returns totaling nearly $250 million in refunds.

About 140 million tax returns are processed by the IRS every year, and fake returns use someone else’s Social Security number. Any crackdown on identity tax theft may take a while to kick in, as staff members need to get the right training.

IRS staffers not trained in identity theft may audit a victim’s returns instead of using them in an investigation. That’s why preventing yourself from becoming a victim is key. The IRS never sends emails to taxpayers, so if you get an email from someone at the IRS, it’s fake.

Learning that you’re a victim of identity theft can be a horrible feeling. Facing an IRS audit can also feel pretty bad.

But you don’t have to deal with the IRS on your own. Hiring a tax attorney or tax professional enables you to protect as much of your assets as possible from the IRS’s collection actions. That’s one way to help you avoid a financial identity crisis.

Sometimes making less pays off

There’s an old saying that says the more money you make, the more problems you have.

And for those Americans making at least $1 million a year, those problems weren’t fun.

One of every eight Americans who called themselves millionaires in 2011 faced an IRS audit. Those making less than $200,000 had a much smaller chance of being audited: one out of 100.

Democrats in Congress have been unsuccessful in persuading Republicans to raise taxes on the rich. So the IRS’s auditing efforts have increased to bring more revenue into government coffers.

With twelve percent of millionaires audited in 2011, that was a jump from the eight percent audited in 2010. From 2004 to 2009 the percent was between five and seven. The IRS denies politics has anything to do with that, and cites tax fairness as the reason behind it.

Getting audited by the IRS is no fun. You’ll have to answer to the IRS, produce documents, and possibly pay more taxes. More than eight out of ten audited taxpayers paid more taxes in 2010.

There are many triggers the IRS uses to determine who to audit, and sometimes they are simply arbitrary, but having a tax debt stacks the odds for an audit against you, and one of the most potent forms of collections is a wage garnishment. In 2011 the agency garnished wages and seized money from bank accounts 3.7 million times, which helped them round up countless millions in back taxes.

If you’ve been on the receiving end of an unjust audit, make sure to hire a tax professional to help you obtain a favorable outcome. You might not be a millionaire, but that might be a good thing just this one time.

Employee, or Freelancer?

When a businessperson begins hiring employees, it’s a sign that business is picking up and sales are on their way up. But don’t make the costly mistake of classifying your workers as independent contractors when they should be labeled as actual employees. The IRS can force you to pay back payroll, Social Security and Medicare taxes. That doesn’t include unemployment taxes, either. So, make sure to get it right.

Some questions to ask when classifying workers include:

• Does the business have control over what the worker does and how his or job is performed?
• Is there an employment contract? Benefits for the worker? Is the worker’s job a key part of the business?
• Does the payer control business aspects of the worker’s job? These aspects include how the worker is paid, if expenses are reimbursed and how supplies are provided.

When it comes to classifying workers as either employees or independent contractors, there’s no magic formula. Some factors may point toward employee; others toward contractor. If you need help, you can always fill out IRS Form SS-8 and let the IRS make the call. Be patient, as the decision can take months.

You may save a few bucks by classify your employees as independent contractors, but chances are the IRS will probably find out. And if they do, it’s not pretty. Your business can be subject to an IRS audit and paying a significant amount of back tax debt is likely. If and when that day comes, make sure to have a tax attorney on your side to increase your chances of resolving your liability fairly.

He saved $444,845 after our audit representation!

Sometimes, good things happen to good people in bad situations. Like Ashraf I. He was diligently running his company when the IRS audited him and hit his corporation with a massive tax debt of nearly half a million dollars. Because of the complexity of the situation, Ashraf did the diligent thing and looked for help, contacting our firm for assistance. We began our audit representation quickly, and ended up with quite a success story!

StopIRSDebt.com was able to put together all the necessary corporate documents and prove that the distributions to the officer of the company were actually loans that were eventually repaid. The IRS closed the examination and voided all of their additional assessments. Total client savings: $444,845.

Audits are a big deal, and no one know this better than Ashraf I. The IRS threw him a fastball, but like a wise coach he let our staff go to bat for him, and together we hit it out of the ballpark. Now that’s good teamwork worth cheering for!