It seems these days that there is an abundance of new rules concerning taxation and other IRS issues. One such new item is an audit of taxpayers that have income in excess of $100,000.
Here are some questions to consider when you have been called to participate in the audit:
I. Do you understand the nature of the audit? How will it affect me personally, my business, and my tax returns? How will it affect my spouse and dependents?
II. Have you examined the nature of the business income for the past three years?
a. For the past three years, have your business profits increased, decreased or sideways?
b. Are your business losses offset by foreign sales and income?
c. Are there large or unusual deductions or credits?
d. Have you had prior IRS audits?
e. Do your tax returns show a bottom line, a loss, or again?
f. Does your business require larger or smaller business returns?
g. Are your business or personal investments worth more than $100,000?
h. Have you received significant reliance on tax shelter transactions?
i. Do you operate your business like a hobby?
j. Does your income exceed $100,000?
j. Have you received significant to rely on tax shelters?
k. Does pay back your work or interest seem impossible? (See #3)
They do not stop there, either. They want to know how your investments are managed, their interest in the matter.
In addition, they expect the ability to work with you with an open mind in finding out if you were unprofitable.
Seeking to get at the heart of why you have not been paying your taxes in the past.
To the extent you are able to successfully complete an audit, one of the IRS’s goals will be to understand why you did not pay them. You will be interviewed by the examiner and asked several questions. Here are a couple of examples of typical questions and a couple of questions that will probably not be asked during the audit:
1. Why did you fail to pay your income taxes?
a. If the reason is as unclear to the examiner, do not be afraid to explain away what you did not fail.
b. You should be clear and honest and not have any difficulty in explaining why you paid less than you otherwise would have.
c. Did you receive any significant other income that you did not report?
d. Do you own a home and have equity that would reduce your reported income or assets?
e. Do you own investments that you did not report on your return?
f. Did you transfer large amounts of assets to or through your children or former spouse?
g. Do you own property in your own name that you did not report on tax returns?
h. Did you write off any amounts on your return?
2. Was there employees’ withholdings from their salaries?
a. Are there any bank loans or credit lines owed to you, or do you owe any of your children?
b. Do you have any bank accounts?
c. Are you actively involved in any retirement plans?
d. Are you a member of any social or church organizations?
e. Are you a member of any school, union, or organization?
f. Are you an employee? Who is the payee for any of your family’s credit cards?
3. Is there software, databases, or support services for your return?
a. Is there dental, property, and other loan information that you can obtain from financial aid or loans?
b. Is your tax preparer willing to provide a copy of tax returns?
c. Are any returns signed by the person who prepared your return?
d. Is all your tax information recorded at an institution other than your business or home computer? This may include a mobile phone or home security system at your home.
e. Who is responsible for each of your loans?
f. Do you owe any money?
So to gets to the bottom of this audit, let’s look at how the IRS combats these issues:
1. Overcoming Requirements
The IRS is expensive, and collecting tax information and completing the audit has increased substantially. The IRS has been forced to increase its audit staff dramatically. This results in a greater emphasis on collecting the information and results in a Verify Remuer recapture (“VTR”) and recalculation or audit.
These audits are expensive and time-consuming. The IRS staff working the audit make more money per hour compared to the number of auditors they have on their staff. Unfortunately, the time it takes to complete an audit is unlikely to be reduced any time soon.
The audit team starts by reviewing your returns, collection of which is based on those returns.
3 Questions to Ask When You Have an Audit
