Surviving An IRS Tax AuditDaniel Dobbs2023-05-26T08:26:38-07:00
As “1099” Real Estate sales people & loan officers… we qualify for tax deductions that “John Q taxpayer” doesn’t. We’re also targeted for more tax audits. The experience can be stressful & intimidating.
Knowing the process & developing strategies can make the difference between coming out unscathed OR paying $$ & being subject to more audits.
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The Audit Starts with a Letter (IRS Form 4564).
It’s an “Information Document Request” and may be the first of several you receive.
Form 4564c requires you to gather requested records for review by an IRS revenue agent. If you receive an audit letter you want to see your CPA, Enrolled Agent or Attorney immediately.
Aside from the knowledge they possess, all 3 have additional assets you do not. They are not emotionally involved in the problem & better equipped to be part of the solution.
The audit may be random in nature or your return may have been selected because you are part of an industry the IRS is targeting (i.e. “1099” real estate sales people). Or possibly one (or more) of your deductions is outside the norm for your industry.
The auditor begins by conducting interviews, subpoenas records from the taxpayer and possibly, third parties (i.e. your bank, employer, etc.).
IRS auditors don’t have the authority to negotiate monetary settlements. The auditor is just there to gather facts and documents. Anything you/your representative say is added to the auditor’s report.
Your representative can start by saying “I ‘m not authorized to make representations on behalf of the TAXPAYER but this is how I see it.” The reason for the prefaced statement of YOUR representative’s words CAN NOT… be held against YOU; should the case proceed to an appeal or to tax court.
When complete, the auditor will discuss the findings. If the result is unfavorable, DO NOT try to persuade the auditor to take a more favorable approach.
You simply appeal. Next the auditor will forward to the IRS Appeals division. At the appeals hearing you (and /or your representative) will have the opportunity to present new arguments and evidence.
At all times be courteous. Arguments in your favor presented courteously and logically will generally generate something in your favor.
If there are no new facts or new arguments, you’ve raised the risk you’ll lose on appeal. If an Appeals Division rules against you, a 90-day deficiency letter will be prepared by the appeals officer.
You’ll generally be asked to sign an extension. This is where you say NO!!! This gives the IRS appeal department more time to find more facts & documents to substantiate the IRS position the IRS.
Remember there is a 3-year statute of limitations from when your tax was assessed.
If your case is really strong, the agent at the Appeals level or at the Tax Court level may negotiate an offer of discount that could go as high as 80% or may concede the IRS case is not there and dismiss it.
If tax deficiency is owed and it is more than 3 years since it has been assessed, it can generally be discharged in bankruptcy.
The IRS has to make the assessment within those 3 years; barring fraud & tax evasion committed by not declaring various income in your return in the first instance).
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