Tax Resolution Solutions – Questions You Should Ask And Actual Resolutions Tax resolution solutions is a general term applicable to issues people and businesses have with the IRS. There are numerous solutions when dealing with resolution. It is very important that the taxpayer understands that when dealing with the IRS, resolving the matter goes far beyond picking the correct solution. This is one reason why many professional people hire us to represent them before the IRS. They realize that hiring a CPA firm with the knowledge and experience to “get them through the system” is essential to resolving their IRS tax issues. Collection action must be stopped. The history going back many years must be examined. The status of the tax return and any money showed on the IRS records must be reviewed. Various questions need to be answered concerning how the liability occurred. Questions concerning applicability of interest and penalties need to be asked. Where payments were posted and if any were lost need to be examined too. In addition the following questions need to be considered. Tax Resolution Solutions – Questions: Has the statute of limitations expired on the assessment? What about collections? Are there any tax returns, payments and/or balances listed under an individual account instead of a joint account? Is a statute about to expire? Will stalling a binding agreement cause a statute to expire in the taxpayer’s favor? Many other considerations are necessary in determining the best tax resolution solutions. The choices are easy, after the situation is properly analyzed. Solutions For IRS Resolution Once any missing returns are filed, and current tax payments are being made, the goal is to bind the IRS into an agreement. Some possible agreements have been listed below. Full payment of the liability in up to a four month ...Continue Reading

IRS Audit Letter As A Correspondence Audit This is the most common type of audit. It is easier and less costly for the IRS than a face to face audit. The IRS has instilled such fear in the American taxpayer, that most of us are willing to send them a few hundred dollars rather then put up a fight. This is of course, if you have the money. Why subject yourself to a more extensive audit? Usually just sending in the documentation asked for will do the trick. We recommend that you understand what documentation is required to substantiate your deductions before sending anything in. If your exposure for additional taxes is large enough we can advise you or prepare the response for you. When Is An Audit Letter Issued? How to Respond After going through the matching process with their automated data processing (ADP) system, the IRS will isolate discrepancies on returns. An IRS audit letter is sent to the taxpayer detailing the mistakes and the related liabilities they created. If the letter doesn’t outline a refund for you, it will request you send money. You have options if you disagree. Sometimes the IRS makes mistakes, so read the options carefully. Don’t be fooled by the fact that you were contacted by letter. This is a form of an IRS exam, and I have seen them deny deductions after sending in valid documentation! This is not for the meek. It takes more than just reading and following IRS instructions to make your deductions stick. Sometimes the instructions mislead taxpayers away from their right to support the deductions. Many changes to the wording in IRS documents have been changed over the years. We’ve learned not to blindly follow IRS instructions, have you? Don’t be shy we can help put things ...Continue Reading

Audit Letter – IRS Notice That They Changed Your Account Basically the IRS informs the taxpayer that they saw fit to change their tax return. They are correcting what the IRS feels is an error in the return. Now it’s your job to figure out if they are right before responding. Audit Letter And Examination Scheduled This is the big tax audit letter we all fear. You are invited to schedule a face to face audit. Don’t worry you don’t have to go, you can send your advisor instead. We recommend that you go in most cases. You will be coached and have us by your side. Let us know your concerns. Call now. Notice Of Tax Amount Changed When the IRS decides they want to move quickly or you never responded to a letter the IRS claims they sent you. I’ve seen the IRS send letters to an address the taxpayers moved from about 12 years ago. For the last 11 years they sent their joint return in with their same current address. It’s interesting that the position of the IRS is that you have to file a change of address form when you move. They are not responsible for looking at the last eleven returns you filed! Anyway, this letter is designed to get your attention. They charge you with income from all sources reported from them. This includes gross proceeds from the sale of real estate or stock. They give you the minimum amount of deductions and then compute the tax, including interest and penalties. We most always get the IRS to accept our figures for a correct tax return. Notice Of Examination Report And Change To Your Tax This is the audit adjustment letter that shows the results of an audit. You can still get the ...Continue Reading

Audit Red Flags – A Sloppy Return? Why this is an audit Red Flag, I don’t know. So what if you do your return by hand? My brother always does his that way and was only audited once in the last 30 years! Of course, he adds it up correctly. He writes legibly, so it’s readable (well that’s debatable, but don’t tell him I said so). I imagine that if you make it hard for the return to be processed, it will be kicked out and returned to you. I’ve seen it happen before. Maybe you’ll get audited , maybe not. Under Reported Income Don’t forget that the IRS matching program lets them know what W-2′s, K-1′s and 1099′s were filed on you. These records become due usually in August. This is after April 15th filing date. For the current year, it’s usually not a problem unless you didn’t keep track of your documents. If you are delinquent for a few years or more, we usually get those records from the IRS before preparing returns. We suggest that you do too. Are Your Deductions Almost As Much As Your Income? You will be audited, in my opinion, if after deductions it looks like you didn’t leave yourself enough money to live on. In cases like that, we add statements to returns such as “taxpayer lived on borrowed money” or “taxpayer borrowed money from family to live on”. Of course the statement should be true. Also, check itemized deductions. Excess itemized deductions can trigger the alternative minimum tax. This reduces the benefit of the excess deductions. We found that by lowering some deductions, the tax will remain the same. However, since the deductions are lower, you have less audit red flags. Large Currency Transactions Banks report cash deposits over $10,000 to ...Continue Reading

Audit Flags – High Income Yes, making more money then the average person can be one of the audit flags. By making over $100,000 per year your audit chances can more than double. Over $1,000,000 and it will be several times more than that. We still think you shouldn’t be discouraged from making as much money as you can. Just hire good accountants. If you need a referral, just call us. We know a couple of excellent CPA’s. Home Office Deduction Flag We recommend that our client avoid this because this is on of the audit flags that the IRS continually looks for. Unless the expenses warrant taking the risk, we say “don’t take it”. In practice, given the reasons the IRS audits people, I can’t remember anyone who was audited specifically because they took the home office deduction.  If they did the returns themselves or hired a part time tax preparation company employee who messed it up, then yes it could trigger an audit. I’ve seen home office deductions for employees (W-2 recipients) on a Sch A. By far these can trigger an audit. There are very strict rules for taking any employee business deductions. Do you know what they are? We can help. Using Large Round Numbers If you want to show you are estimating you can use round numbers as much as $5,000. If you use too many large round numbers to IRS, they may conclude that you are not keeping adequate records. This means there is a greater likelihood that a larger tax assessment will result if you are audited. It has always made sense to me. We try not to use too many round numbers. This can backfire. No one seems to explain this to the general public. If you use an exact number such ...Continue Reading

IRS Audit Triggers – Changes In Income There’s not much you can do here to avoid some IRS audit triggers. Income can go up or down, but your expenses may stay close to the same. Just remember to document with explanations, anything that looks odd on your tax return. We can review your returns to see what sticks out. Charitable Deductions The IRS seems to think that people in your tax bracket should only give a certain amount to charity.  I think if you do give an amount that seems large, then explain it. Footnote the return about how you found God this year and felt it necessary to be overly thankful to make up for the past. You could more believably, just include documentation with the return and hope the auditor reads it. I represented a taxpayer who actually sent in documentation for all items on his return. The auditor told us that it was the most documented return he’s ever seen. The audit took place anyways, even though we made sure not to overlook any IRS audit triggers. Luckily the audit adjustments were very small. So  document high charitable deductions and other items as necessary. There is no guarantee they will prevent an audit. Income From Off Shore Accounts This has gotten a lot of people worried. I have actually had audits where the taxpayer was selected because they found bank transfers from other countries! I have amended returns because of people not reporting their overseas accounts that totaled over $10,000. Just make sure you meet all reporting requirements for any foreign transactions. Deduction Of Large Casualty Losses We have seen this IRS audit trigger before. Often it is done by misinterpreting the rules. Just because you have a casualty loss does not mean it’s deductible. Auditors know ...Continue Reading

Audit By IRS And Have Not Heard From The Auditor In Months Most likely that’s good news for you. The longer they wait, the more pressure there will be in to close the audit later on. If the auditor is transferred off your case and the case “falls through a crack”, it may close without any adjustments because the time period to audit you has lapsed. Sometimes audits will put the burden on you or hurrying up with the threat of big adjustments against you. That’s where our experience can help you. Can I Make It Through An Audit Without Owing More Taxes? Very few people and businesses make it through an audit without changes. We’ve seen IRS auditors trying to make every deposit an income. We’ve experienced auditors disallowing deductions when taxpayers can prove the expenses. We filed an appeal last year on a hobby loss case. The taxpayer’s business was obviously carried on as a business. The auditor used the general rule and said that since it didn’t have profit in 3 of the last 5 years it was a hobby. Showing the auditor tax court case and explaining that there are circumstances that go beyond the general rule didn’t matter. We do not recommend you handle an audit without professional CPA help. Should I File Next Years Return During An Audit by IRS? Not really. You don’t want it selected for audit. File the first extension which takes you to Aug. 15th. You may elect to file late and pay the late filing penalties and interest if you owe. We’ve had audits where the auditor held the audit open and wasn’t going to close it until the taxpayer filed their return! It’s a judgment call. That’s another reason to hire a CPA firm to represent you. Auditor ...Continue Reading

Avoid Audit – Can Not Be Done By Not Filing Your Tax Return There, I said it. Some people have actually asked me if they can avoid a tax audit by not filing. So file your return in a manner that allows you to avoid audit. This site has many ways for you to consider. Report Everything The IRS Has On You Even if you know the information reported to the IRS is wrong,  put down the amount the IRS has. Then make corrections with explanations, from that number to arrive to the number you think is correct. If you are self employed and receive 1099′s, list them separately in the income section on the  Sch C of your 1040 return. This way they can tie in the total 1099 income you report to the total they have on file. It gives them some comfort that you may be reporting income correctly. Report all interest and dividends, even if it is only $1.00. Pay Something In Good Faith – Maybe In my many years of practice, I have never seen the value of a “good faith” tax payment in avoiding audits. Audits are not based on how much liability is remaining unpaid when you file your return. Obviously, paying your taxes will reduce the penalties and interest. So if you know you owe, pay as much as you can. I have a way to almost always have your penalties removed, just for asking. It’s in another section in this site. Chase A Reputable Firm To Prepare Your Returns I have been on the phone many times with IRS employees. Some of them were forward enough, to tell me their opinion of some of the more well known IRS representation companies. They said that any documents the IRS receives from these ...Continue Reading

Audit Adjustments On Your Audit Report Form 4549 Your audit report often doesn’t contain the explanations for adjustments that they are supposed to. Most of it is boiler plate information that spits out of the  IRS computer. You need good explanations for any audit adjustments. Adjustments To Income From Bank Records IRS  Auditors have told me that they are just taking all the deposits they find on your bank accounts and are counting them as income. We have found that to be true in the audits we are involved in. Make sure you account for all deposits, even if you have to get notarized statements from the people who gave it to you. Don’t let yourself be a victim of paying taxes on deposits you know are not income. Most of our clients don’t. Adjustments From Mileage Records Did you know that you can create a mileage log after you receive your notice of audit? Did you know that auditors like to take only a percentage of what you claim, even though what you claim is reasonable? Don’t let it happen. Fight for your vehicle deductions. Some are classified as employee business expenses, some are not. For example, if you are self employed and claim mileage commuting from one job to another, it may have to go on Sch C. This way you get the deduction even if you don’t itemize, and it also reduces self employment taxes. Audit Adjustments For Personal Use Items Things like computers, cell phones, cars, etc. that can be for both personal or business use are looked at more closely. Auditors want you to prove the percentage of business use. It’s not enough to show that you paid for it from your business account and have the invoice. You must document your business use and ...Continue Reading

Avoid An Audit – Keep Your Income Low Taxpayers making over $100,000 a year tend to get audited more. Some people suggest you divide your income among family members to help avoid an audit. I would caution against  assigning income to a family member who obviously didn’t earn it, or didn’t even work for your company. We know the cases where it is possible to do this. Income That Do Suspiciously Low I’ve seen people report income of $20,000 with mortgage payments of $40,000. Though it may be possible, the IRS often will not give you the benefit of the doubt. If your income doesn’t look like it supports your living expenses, make sure you attach a detailed explanation in order to avoid an audit. Don’t Use Round Numbers Too Often Round numbers imply that you are estimating. This is O.K. in some cases. In others, it sends a signal that you may not have records. A good chance the IRS will feel that your return will produce additional tax revenue for them. Very Large Charitable Contributions I’ve had clients who donated 10-20% of their gross income to their church or charity. They did this during a year that they owed the IRS $25,000. It seemed like they were giving their tax money away to avoid an audit, instead of paying their taxes. Participation On Tax Scams This may seem obvious to you, but many people unknowingly file false returns based on things the IRS considers tax scams. If the deduction or refund seems too good to be true, question it! Most people pay 20% or more of their income in federal taxes. If you are low income, have many kids, etc. you may pay less. But if you are unclear why your taxes are below the norm for your ...Continue Reading

There are several factors the IRS uses to determine which returns are selected for audit. Consider the following IRS audit rules for selection. The IRS Uses A Matching Program With computers these days, its not hard for the IRS to match your return with various documents they received from 3rd parties. They even have a document you can get from the IRS that has all the W-2′s, 1099′s, and K-1′s that were sent in with your social security number on it.  Getting them is a must when you prepare several years of back tax returns. The IRS is sent information from your bank on cash transactions totaling over $10,000. Many overseas financial institutions are disclosing accounts owned by U.S. citizens. This matching of information will increase over time. It’s best to know what the IRS has on you, before an audit takes place! IRS Uses A  DIF Score This stands for discriminate income function. Each item on your return is assigned a score based on factors, such as if it’s high compared to others in your tax bracket or  is it out of line with your other expenses. You can always ask the auditor why you were selected. Most often they will tell you. Audit Rules for Compliance Audits Sometimes your return was not selected because they felt something was not right on the return. They want to see if taxpayers are in compliance with the rules for tax preparation. This information gives them feedback on how well the public is understanding the rules. I’m sure it also helped give the IRS more data on all the crooked tax preparers, giving their client’s phony home buying tax credits! Whistle Blowers Program Or Dropping A Dime The IRS has awarded Whistle Blowers up to 30% of the additional tax money they ...Continue Reading

Audit Strategies – Don’t Meet At Taxpayer’s House Don’t let the auditor meet you at your home. You do not want them to look around and take inventory. Audits should take place in the IRS office or your tax advisors office. That’s another reason to hire a CPA firm. We have had many business audits conducted at our office. This avoids the auditor going to the business in most cases. Extend The Audit Or Not If you need more time to prove your case, then extend the audit. If you are anxious to close the case, then don’t agree and request the auditor issue the audit report. If you put too much pressure on the auditor, then they may charge you with more tax liability than you were hoping for. It’s a judgment call requiring experience but when used is on of the best steps in audit strategies. Just The Facts and Only The Facts Stories with facts open up more areas to be questioned. Taxpayers require coaching to determine when to speak and what to say. Many cases are now being transferred to the criminal investigation division by auditors. It’s pretty scary. Always wait a few seconds before answering. This gives your advisor a chance to chime in, or you a chance to change your knee jerk response. Don’t Fight Each Adjustment When the auditor is about to make an adjustment against you, don’t fight it. Give your best evidence and arguments. If still not in agreement, then just agree that you will review it later on. Let the auditor feel comfortable doing their job. Once the report is issued, you usually have 30 days to produce additional evidence to change it. You can also speak to the manager. You have the right to file an audit appeal. Don’t ...Continue Reading

As of yesterday, we had another client that was saved from the IRS Criminal Investigations (CI) department. After negotiations with the Criminal Investigator assigned to our client, they agreed to drop the charges and moved the case out of the CI department. This is just another example of the type of professional representation we offer here at Joe Mastriano P.C.. In compliance with the tax laws in the US is strictly voluntary and relies heavily on self-assessments. When we as taxpayers deliberately decide to ignore the law, we are subject to the possibility of civil audit or criminal investigations. The IRS is the only agency that can investigate potential criminal violation of the Internal Revenue Code. When the IRS Criminal Investigation department is involved, it could result in prosecution and possible prison time. The conviction rate of the cases that are prosecuted by the Criminal Investigations department is the highest in federal law enforcement. Those that are convicted and sentenced to prison time must still pay their fines, civil taxes and all penalties. Currently, statistical data posted by the IRS states that over 84% of those convicted will be sentenced to an average term of 49 months of prison. Through the relationships we develop with the IRS and our diligent work, we were able to spare our client that opportunity. Some common questions asked by taxpayers about IRS Criminal Investigations: What does the IRS consider to be tax evasion? What does the IRS consider to be tax fraud? Can filing a false return flag my account for the IRS Criminal Investigation department? Dealing With The IRS Department Of Criminal Investigations And Want Some Help, Contact Us Today! How big of a tax problem must I have before the IRS Criminal Investigation department is notified? Can money laundering be a reason ...Continue Reading

CPA Scam Help For IRS Problems What is a scam? A scam is loosely defined as an act where someone misleads you with information in order to get you to compensate them with your money. Depending on how good that person is, you may be deceived out of just a little bit of money or they may take you for everything you have. Everyday we see new companies claiming to perform miracles when it comes to helping individuals with their tax problems. When it comes to a representative promising you resolutions, be extremely cautions.  Most people do need CPA scam help. Make sure you research the company and protect yourself and your money. Check into their history.  If you question their ethics, and think you need CPA scam help, then you  may want to contact their state board to see if they’re actually licensed to be doing the work that they’re advertising. When you hire someone that isn’t licensed to represent you, you have little recourse if they don’t do the work they promise you to do. Licensed professionals know that if they misrepresent their services, they could actually lose their license. So make sure the company you hire is worth hiring. At Joe Mastriano P.C., we take great pride in our reputation. We’ve been in business now for over 30 years and we ‘KNOW THE IRS LIKE THE BACK OF MY HAND!’ We are a license CPA firm and will put forth the professionalism you need to resolve your tax problem. We have never lost our license and we provide the services that we offer in order to keep it that way. This is your problem, but we will handle it as if it was our own.

IRS Tax Audit Representation by Houston Tax CPA, Joe Mastriano.

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