Tax Audit Defense – Get the Best Representation
So you won the tax audit lottery. The big scary IRS is picking over your tax return with a fine toothed comb. You worry, are you going to have to come up with more money for taxes, fines and late fees? Will they send you to a gulag for a subtraction mistake?
Worry less, but get tax defense. A tax audit doesn’t necessarily mean you’ve done something wrong. The IRS computer randomly chooses a percentage of tax returns to audit, and maybe you just got lucky.
If you weren’t chosen by random, why were your chosen for a tax audit? The IRS selects the following types of tax returns for audit:
- Returns with large gross incomes
- Returns with Schedule C attachments
- Returns with a high percentage of deductions claimed in relation to gross business income
- Returns with capital gain transactions
- Returns whose numbers don’t match the other documents—like W2s and 1099s that the IRS has with your name on them.
- Returns missing W-2s
- Returns that involve transactions with other taxpayers—like your partner or an investor— whose returns are being audited
It’s normal to fear the IRS tax audit notice that says you’ve been selected for a tax audit. The funny thing is, by the time you get the notice, you’ve already been audited! It’s true! The IRS audits your return BEFORE you get the notice. They correspond with you about what they found in their audit.
Now you’re pondering your tax audit defense strategy. You could defend yourself. Or better off, you could hire Mike Habib to defend your tax position. We represent and defend taxpayers in all 50 states.
Get a free case evaluation today at 877-788-2937.How Can You Defend Yourself?
The best defense is a good offense: reduce your chances of getting audited in the first place by following a few tricks.
- Be honest when you file your taxes, especially when you itemize deductions. Don’t put any number on your return unless you have evidence of that expense or deduction, especially charitable contributions.
- Always save documentation for every aspect of your financials, all the time. Paperwork is your best friend in your tax audit defense. Keep records of all income and expenses organized all year so they are readily accessible when you figure your taxes. Then keep all that paperwork together with your return for at least three years, but better still, for seven years.
Internal Revenue Code §6001 grants the IRS the authority to require any person to produce all applicable records to show whether or not there is additional tax liability. They have the right to inspect all of these records. You have to submit them.
So gather up anything that provides evidence to defend your tax claim.
- Print out all your bank statements for the year, even if you bank online.
- Print proof of payment for alimony and child support, taxes and charitable gifts.
- Download and keep proof of payment for the purchase or repair of your home. Hang on to your home mortgage loan documents, and those for second homes, forever, or at least until you sell your property.
- Your year-end credit card statement is a good thing to download if you made tax-deductible purchases on it. You don’t have to print out every single month’s statement.
- Keep proof of non-deductible contributions to your individual retirement account (IRA).
- Store your business loan documents for seven years, even if the loans are paid off.
- Same goes for documents belonging to any personal loans: keep them seven years.
- Car loans: just file the documentation away in case a tax audit ever rears its ugly head and you need it.
- Save documents regarding your stock and bond purchases and sales.
- Make a file folder for your retirement account, and keep evidence of contributions and withdrawals for seven years.
The tax code doesn’t require small businesses to keep formal books: a checkbook is acceptable for tax defense. But if you have ledgers and journals, turn them over. Hiding records from the auditor will result in the auditor estimating your income and expenses, possibly to your financial detriment. Then they will impose a penalty for failure to keep records.
If your tax audit notice asks you to send in some of the above paperwork to substantiate your position, three suggestions:
- Only send copies—never originals— of your evidence.
- Make sure your evidence is for the correct tax year, the one the IRS is auditing.
- Don’t send anything that was part of your original audit. Just the new stuff.
The IRS states you that during a tax audit, you have the right to:
- Professional and courteous treatment by IRS employees
- Privacy and confidentiality about your tax matters
- Knowledge about why the IRS is asking for information, how the IRS will use it and what will happen if you do not provide the requested information
- Representation by an authorized representative power of attorney
- Appeal disagreements, both within the IRS and before the tax court
It costs nothing to appeal your audit yourself, the process can also give you time to raise the money you owe. And an appeal may save you money as well. That’s the good news. The bad news is that the appeals officer may turn up a tidbit the first auditor missed, and you may owe more money for that.Get Help for Tax Defense
Good tax defense does not cost you per se, it pays you! Your tax audit defense is probably going to cost you fees for proper representation, but it’s like an investment with returns of peace of mind, timely and proper resolution. Paying a professional could save you a lot of money in taxes and penalties. An enrolled agent, a certified public accountant (CPA) or a tax attorney can spend their time on the hot seat with the IRS while you loll around in the Jacuzzi instead of being grilled with questions at a federal building.
Get a free case evaluation today at 877-788-2937.