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 term from the current date.

• Installment Agreement or Payment Plan – Small Dollar Payment Plan- You may easily be able to get up to 60 months to pay a liability if the principle plus any interest and penalties that are part of the original assessment is < $25,000. (Notice I said original assessment.) You can also buy this down below $25,000 by making an immediate payment.

• Currently Not Collectible Status (CNC) – An agreement where, as a result of filling out the collection information forms, the IRS can’t satisfy the payment of the debt by the end of the statute of limitations on collections, they may put you in a CNC status. This means they have considered any equity in assets, and your ability to make reasonable monthly payments that will extinguish the debt in a reasonable collection time frame, and have concluded that you really don’t have the ability to pay

• Offer In Compromise (OIC) – An offer is a way to settle your tax debt liability for an amount less that you actually owe. This settlement is accepted on the basis of 3 different reasons. The first when there is doubt as to your liability. You believe the IRS liability is not valid and feel that the IRS will have difficulty proving it. The second is when there is doubt as to your ability to pay the taxes owed under your current circumstances. Most offers are filed under this section. The third is when taking your assets will create an undue hardship.

Contact Joe Matriano, CPA For Your Tax Resolution Solutions.

In need of some tax resolution solutions?  Want to put your troubles with the IRS behind you?  Contact our firm today to see how we can help.  Joe Mastriano, CPA has over 30 years of experience dealing with the IRS.  Along with the experience comes the knowledge of how to handle everything the IRS can throw your way.  Contact us TODAY!

• If you are considering hiring us, call Joe Mastriano, CPA 713-774-4467.
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• For your analysis, click here to email me.

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 back in your favor.

Upon Receiving An IRS Audit Letter

Don’t assume the person who prepared the return is the best person to respond to the letter. The preparer may have caused the letter to be issued in the first place. The best professional to help you respond to an audit letter is a CPA who does this often. We have a strong expertise in audit matters.

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 auditor or manager to change it. If not, you can still file an appeal. We don’t suggest you do this on your own. We have the audit experience necessary to protect you from adverse changes against you.

Notice Of Change To Tax Return Due To Recent Audit

After the audit is concluded and the adjustments are made to your account, interest and penalties are calculated. You will get a letter showing this.
Most of these letters have now been slightly revised. I strongly urge you to consult with us on most all IRS matters. Whether or not you receive a tax audit letter.

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 the IRS. They also report cash deposits made within a short period of time that total more than $10,000. Just be prepared to explain the nature of this in an audit. They usually want evidence that you reported it as income. If it was not income you will have to show proof too.

Businesses That Deal In Cash

If your type of business is usually a cash business, then you are at a greater risk for an audit. Restaurants, contractors, hair cutters, etc. fall into this category. It’s safer to deposit all cash and then withdrawn money as needed. Of course we know few people who do this. If you don’t, then your need solid professional audit representation.

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 as $5,431 and you don’t have any proof for the deduction, the auditor will treat it as an obvious attempt to put down a phony deduction. There are defenses. We have become quite good over the years at defending our audit clients.

Too Many Dependents

When I was a teenager, my mother had a friend who deducted his pet a dependent. After a few years he was caught by the IRS. Since then, I’ve always wondered why people would claim things on their returns that are obviously fraudulent. There are five test for whether or not you can claim someone as a dependent. If they pass the test claim them. If not, then don’t.

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 most people don’t keep the required documentation to support their claim. We usually help our clients by asking them to be prepared for an audit at the time their tax return is prepared.

Income From A Full Time Job And A Loss In Sch C

The IRS will probably automatically think that you have a hobby. This was something we did in the 1970′s to lower income. The IRS is fully aware that most people won’t meet the test for spending enough hours to give the business the consideration needed to produce a profit. We have an audit appeal filed on this very issue.

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 Is Being Unreasonable, What Are My Options?

You need unlimited patience an audit by IRS. If you are being as nice as you can and still have problems, see if you can find wisdom within the free advice tab on our website. If you can’t resolve the issues then you can speak to the auditors manager. After that you can file an audit appeal. Lately, during 2010 and 2011 we have had to file more audit appeals than usual, due to the lack of training of the new auditors that were hired. Negotiations can sometimes seem unreasonable, even for us. So why would you want to do this alone or with someone inexperienced?

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 companies are scrutinized much more carefully than if they came from a more reputable company. We are considered a more reputable firm.

Sign And Date Your Return

Usually the IRS will just send you a letter requesting your signature. They will probably not audit you for this. Why call attention to your return? Sign it and date it. If filing, married filing joint, then both of you must sign. Don’t forge your wife’s signature. She may be in our office a few years later requesting that we try to get her out of the taxes based on innocent spouse. She will claim that you forged her signature. Obviously, staying married will prevent that from happening.

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 also show (for the most part) that it was ordinary and necessary to incur that level of expense in your business.

Additional Penalties For Substantial Understatement

Auditors have told us that they are not allowed to remove those additional penalties. We found in practice, that if we look up the reasons on the IRS Penalty Handbook, and have a good enough reason, and trade it for the taxpayer signing the audit report, then we can get it removed mostly all the time. Let’s face it, maybe a taxpayer loses a deduction because the auditor doesn’t accept their receipts, maybe they are missing some receipts. That doesn’t mean that they were negligent in declaring the information on their tax return. It doesn’t mean they intentionally disregarded the rules. It doesn’t mean they did anything wrong! Now its your job to convince the auditor. We can do it for you if you’d like!

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 situation, then find out why and investigate. We know how to judge if your return look suspicious or not, do you?

Match Your Federal And State Tax Returns

You may be required to file a State or State and City income tax return. Make sure the income and expenses match properly. This is another good reason to use the tax software and hire a CPA.

Even though you may take all the precautions to avoid an audit, it does not mean you won’t be selected for one.  If you do receive and notice that you account has been reviewed and will be undergoing and audit, make sure you hire a professional.  With over 30 years of experience under our belt, the team at Joe Mastiano PC is well equipped to manage your case and promise you the best outcome. Visit our website for additional information by clicking the link below or call us NOW, at (713)774-4467.