From Carol McAtee’s CPA firm in St. Petersburg, FL–Now that your 1040 has been filed, the question is: will the IRS come a-calling? Audit letters typically go out 18 months after the filing date of the return. Listed below, are five things concerning IRS audits.
- Audits are on the rise. The number of audits has risen each year for the past ten years. And that trend is expected to continue, with the ballooning federal deficit and the additional $400 million earmarked for tax enforcement in 2011. However, most taxpayers audit risk in any one year is slim, about 1 percent for those with incomes under $200,000, 2 percent for those with incomes from $200,000 to $1 million, and 6 percent for taxpayers with incomes over $1 million.
- Delaying can cost taxpayers the right to fight. If a taxpayer does get the dreaded letter from the IRS, they should take the action required within the time frame allotted, usually 30 days. If no action is taken within the allotted time period, the dispute becomes a final assessment and moves to the collection process, with no grace period. Taxpayers can ask for a postponement, prior to the deadline, if additional time is needed to locate and organize the necessary records and documents.
- Taxpayers can benefit from having a pro on their side. Three quarters of audits are conducted by mail, with the IRS simply requesting documentation, like receipts, relating to a specific part of the return. However, some audits require a meeting with the IRS to discuss certain issues in greater depth. In either case, the tax professionals at McAtee and Associates can help taxpayers negotiate the audit process and in many cases reduce the taxes, penalties and interest owed.
- Remember, anything said by taxpayers may be used against them. In any audit, taxpayers should avoid offering information beyond what is requested by the IRS examiner. Taxpayers don’t want to unwittingly offer evidence that might expand the scope of the investigation. This is especially true during face-to-face audits, where even engaging in small talk could result in offering incriminating information. Another reason to hire representation is that taxpayers do not have to attend the meetings with IRS officers.
- The auditor’s boss may be able to negotiate. The manager has more latitude than the front-line employee. This can be effective if the issue falls into a gray area. If a taxpayer is still unsatisfied, an appeal can be filed. The IRS will consider any potential loss and based on that potential may offer a compromise. A taxpayer’s final option is litigation, which may only be worth it when the amount is more than $10,000.
If you received a notice from the IRS for any reason, contact us for assistance. As tax professionals, McAtee & Associates can help both individual and business taxpayers with all their tax matters.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
