The IRS: What's it All About?

If you live in America, chances are that you have heard of the Internal Revenue Service, more

commonly referred to as the IRS. This is the agency that insists you file and pay your taxes each year. But, what do you really know about this federal giant? Before you write that next check or fill out your next tax form, why not take a moment to understand the big picture of this agency?  

The IRS: A Basic Definition  

While different people have varied views on the IRS and how it fits into the structure of this country, it is not designed to just be some evil entity that takes your money. Instead, it’s a federal agency that has been taxed (pun intended) with collecting tax revenue from individuals and businesses, which it then hands over to the federal government. The IRS has a lot of power, especially when it comes to its main job: collecting taxes. Thus, like it or not, you do have to follow the rules and policies it sets forth. Otherwise, you could find yourself in a whole lot of trouble.  

What the IRS Does  

While collecting taxes is the IRS’ main job and, of course, what it is known for, it has other duties as well. It’s responsible for processing tax returns, providing helpful information to taxpayers, sending out refunds and stimulus payments when they’re owed, and enacting investigations and audits. The IRS does these things for just about every working adult in the country, so it's really no surprise that it’s often very busy and that you might have to wait a while when you call the IRS with a question.  

The Bottom Line  

Without the IRS, people wouldn’t have to pay taxes. But, without taxes, Americans wouldn't enjoy many of the protections and conveniences they currently take for granted. So, while you might still grumble the next time you have to pay taxes, remember that the IRS is responsible, at least in part, for a lot of the comforts Americans enjoy, and, like it or not, it has an important role to play in modern society.

 

Selling Your Home and Taxes

 Are you planning on selling your home in the near future? Or, maybe you’ve sold it already and are unsure what you can expect in terms of taxes. It really all depends on a lot of factors, such as whether you’re married or single and on whether or not the home counts as your primary residence.  

If You’re Single . . .  

If you’re single, you’ll be glad to know that you can exclude as much as $250,000 from the capital gains tax when you sell your primary personal residence.  

If You’re Married . . .  

Married people can shield even more from the capital gains tax—up to a cool $500,000. Of course, the residence must qualify as their primary residence in this case too.  

What Qualifies as a “Primary Residence?”  

If you own more than one property, you may be wondering which properties, exactly, can count as your  “primary personal residence.” Well to start with, the property must be somewhere that you actually lived, not a property you used solely as an investment. You also need to be able to demonstrate that you have lived in the home for at least two of the previous five years. Those five years are counted from the date of the home’s sale. Remember, though, that you can’t claim the exclusion more than once every two years.  

Ownership Matters  

Furthermore, know that just living in a property for a minimum of two of the last five years isn’t enough. You also need to have actually owned the property for at least two of those years. Often, people will have rented a property before purchase and are upset to find that, because they didn’t own the property for at least two years, they don’t qualify for this exclusion.  

As you can see, selling your home and then dealing with the related taxation can be quite tricky. It gets even more tricky when things like divorce or special circumstances come into play. If you’re feeling confused about how to report your home sale on your taxes or about if and how you qualify for the capital gains tax exclusion, remember that you can (and should!) always call on a tax professional for help and support.

Trump on Taxes

There’s been a lot of talk lately about the tax changes President Trump is attempting to make. 

There are some changes that can be expected as a result of these plans. For example, the Senate intends to reduce the corporate tax rate to 20% in 2019 with the House doing so in 2018. The plans also call for reduced income tax rates, doubled standard deductions, and no personal exemptions.

As you can imagine, people have strong feelings about these changes, but, no matter how you feel, it’s important to educate yourself on the new plans and to be aware of how they might affect you.

Changes Galore

One of the biggest changes under the Senate plan is a lowering of tax rates, though it does keep the same general income brackets. The House Plan, however, makes it so that only four income tax brackets exist, and it does lower a few tax rates in the process.

Also, as mentioned above, the two plans eliminate itemized deductions, something that many people find upsetting. There are some exceptions to this new rule, such as charitable contributions and retirement savings, but the truth is that many of the deductions people rely on will be taken away.

These are actually just a few of a great many changes, so if you feel that you may be affected by Trump’s tax plan, it’s definitely a good idea to “dive deeper” and learn more.

And, for help surviving and preparing for the transition to Trump’s type of taxation, be sure you have a qualified CPA working on your side. It could make all the difference in how well you (and your finances) hold up once these changes go into effect.

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Your First Home and How it Affects Your Taxes

So, you’re buying your first home! Congratulations are definitely in order as you take this huge step! In the midst of all the excitement and celebration over your new home, however, make sure that you think about how this decision will affect your taxes.   

Mortgage Interest Deductions

One thing to remember as you start your journey toward being a homeowner is that the interest you pay on your mortgage is fully tax deductible. Obviously, you don’t want to miss out on this nice break on your taxes, so be sure to accurately calculate the interest portion of your payment to make sure you get your full tax break.

Deductions for Charitable Giving

You might not think that charitable giving has a lot to do with home owning, but, the truth is, many people only become eligible for itemized deductions, such as the deduction from charitable giving, after they become homeowners. This is typically due to their mortgage interest, real estate taxes, and other things related to home ownership. So, if you’ve been giving for a long time, it’s smart to check and see if you’re now eligible to benefit from your giving, and if not, it may be time to start!

Closing Statement Savings

As a final word of wisdom, be sure you save your closing statement! You might find that some of the expenses you’ve incurred, which are listed on your statement, are tax deductible, which can save you more money come tax time. If you’re not sure what, if anything, is tax deductible, just ask your accountant for help!

In fact, a good accountant can help you to navigate all of the changes that come with home ownership and to help you to use them to your benefit, so that you get not just a home, but some nice financial rewards and incentives as well!

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How Does Tying the Knot Affect Your Taxes?

If you’re about to get married, then your thoughts are probably consumed with wedding bells and honeymoon plans, but, while it might not be romantic, pre-wedding time is also a time during which you need to be thinking about your finances, and,more specifically, your taxes. Getting married

comes with a number of financial implications; thus, before you tie the knot, there are some things that you should be aware of and that you should talk over with your partner and soon to be spouse.

How Will You File?

One of the first financial decisions that you will have to make as a married couple is whether you want to file separately or jointly. Each option can be good, but each option can also not be the best choice. It really all depends on your situation and how your chosen filing status, based primarily on the amount of your combined incomes, will affect your taxes.

Most of the time, it is more beneficial to file jointly, but this is certainly not always the case, For that reason, it is always wise when you get married, or, for that matter, go through any major life change, to seek the help and expert advice of a qualified financial professional.

Should You Take Advantage of the Unlimited Marital Deduction?

Another thing you will want to think about, as a couple, is whether or not you should take advantage of the unlimited marital tax deduction. This isn’t the most “cheery” topic to think about since it deals with what would happen to assets in the event of the death of a spouse.

However, those who do have this benefit are able to have assets transferred to the surviving spouse, so, while the topic may not be nice to think about, the benefit is definitely worth educating yourself on just in case. A financial adviser can provide you with more information about this benefit and how you might go about receiving it.

These are really just two of many things you should consider as a soon-to-be-married person. Remember, as you go through this joyous life change, don’t forget to think about finances and to seek the help and advice of a financial professional!

Stock Losses? Don't Worry - Deduct Them

When you invest in a stock, you certainly don’t hope to lose money. Unfortunately, though, losses do occur from time to time, and it’s important to understand that you don’t have to keep paying the price for those losses, at least not when it comes to your tax bill!

Keep in mind, though, that deducting losses isn’t as simple as you might think. There’s a right way- actually a handful of right ways- to do it, and you want to make sure you choose the one that’s going to benefit you the most in the long run. That’s where having a tax advisor and/or an investment advisor can really come in handy!     

Capital Losses

First things first, it’s important to understand what kind of losses stock market losses are. Technically, they are capital losses or capital gains losses. You, as an investor, are only responsible for paying on “realized” capital gains or losses, which means you have to sell your stock for it to truly count as a loss. In other words, just losing money on it isn’t enough. If you don’t sell a stock, no matter how badly it performed, it can’t create a tax deduction, plain and simple.

You do want to make sure, however, that you are not selling your stock for a profit. If you do so, the money you make will be considered taxable income, which will defeat the purpose and benefit of counting your losses to save on taxes.

Figuring Out Your Loss Amount

The loss amount is not just the money you lost or the money you paid for the stock. Instead, it’s the number of shares sold times the per share adjusted cost basis minus the total sale price. If that sounds confusing, it can be! That’s why having a professional to help you do the figuring is really necessary.

Also bear in mind that if there was a stock split while the stock was under your ownership, your costs basis will need to be adjusted accordingly.

Required Forms

Once all the math is done, you’ll need to fill out the appropriate IRS forms to avoid being taxed for lost stocks. The appropriate form is Form 8949 and Schedule D. Your losses will count as short-term or long-term capital losses, based on various factors.

Again, having a professional to help you navigate this process and to choose the right way to handle your stock losses will lead to the most benefits for you. While you can just follow these basic instructions, it’s always smarter to work with someone who will look at your circumstances as unique and come up with the best “plan of attack” for your particular needs. Also, the right professional assistance can help you to avoid stock losses altogether (or at least mostly!) in the future.

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Self Filing Myths

A lot of the time, people are afraid of doing their own taxes. They’ve been warned that it’s “too hard” or even told that it’s pretty much impossible. And, while that may be true in certain complex tax situations, there are many people who file their taxes on their own and who can do just fine each year. You certainly don’t have to do your taxes on your own if the idea scares you, but do know that some of the things you’ve heard about self-filing are just exaggerated.   

Myth #1: It’s Too Tough

As mentioned above, one of the major reasons people shy away from doing their taxes themselves is because they’ve been told it’s just too darn tough. However, that’s not always the case. A lot of people, in fact, have relatively simple taxes that don’t require them to know or even understand a large chunk of the tax code.

In general, as long as you have a standard job with an employer and get your W-2 at the end of the year, filing your taxes should be relatively simple. If you are in one of these simple situations, filing your taxes yourself is probably going to be your fastest, cheapest, and easiest option.

Of course, that’s not to say that there aren’t situations where it’d be best to let a tax pro help you out. If, for example, you own your own business, have a lot of investment assets, or have recently been through some major tax-affecting changes, you should seek outside help to make certain you are receiving all the deductions and credits you deserve.

Myth #2: Audit Attraction

Another thing that people are often (wrongly) scared of is that, if they file their taxes themselves, they’re pretty much asking for an audit. That is a flat-out myth; nothing about doing your taxes on your own makes you more likely to be audited; we promise!

As long as you fill your taxes out correctly and fully, you probably won’t get audited, and, if you do, you’ll know that it was just random selection, not because you filed on your own.

One thing to consider however is that an audit is a scary process.  If you had used a professional, they will stand by you thru your audit. In this case, you need to weigh the pros and cons.

Myth #3: Low Earner

Finally, some people choose not to file their taxes themselves because they think they don’t have to file at all. That’s only true if your income was below a certain amount- it was $10,150 for single filers last year.

There are other exceptions too. The self-employed have to file if they earn $400 or more in a given tax year, and besides, it’s always good to file, even if you don’t have to by law. Filing is good proof of your income or lack thereof for verification purposes, you never know when this information will be needed!  #FileYourTaxes

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How to Get a Bigger Paycheck

Everyone likes the idea of getting a large tax refund, especially if their income throughout the year is lower than they might like it to be. However, a big tax refund isn’t always a good thing in the long-run and could indicate that you need to be taking more W-4 tax exemptions.  

When you file for more exemptions- which you can do when you first start a new job or later by contacting someone in Human Resources (HR)- you’ll have fewer tax dollars withheld. Filing for more exemptions will inevitably to a reduced tax refund, but, on the upside, it will also lead to larger paychecks throughout the year.

Do be careful, however, to withhold at least the required amount (check your state and personalized guidelines with the IRS and/or your financial advisor, or, if you’re a do-it-yourself type person, use the IRS’ withholdings calculator), or you could face penalties, which would defeat the whole purpose of changing things up.

While it’s nice to get a huge payoff come tax time, most people would prefer to simply have more money on a regular basis and in their day-to-day lives. If that’s you, then follow these “big paycheck tips,” and you should get your desired results.  #BigTaxRefund

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Cutting the IRS Budget, Its More Dangerous Than You Think

No one likes paying taxes, even if the money does go to (some) good use. That, in turn, means that nobody likes the IRS, the agency that enforces those taxes. Hating the IRS, though, and lobbying to have its funding decreased isn’t targeting the right agency. The IRS isn’t really as responsible for those awful taxes you have to pay and those archaic tax laws you have to follow as Congress is.

See, Congress is responsible for creating and changing the tax codes, laws, and amounts. Its aim is to promote positive things, such as marriage and home ownership, by giving tax breaks to people who do them and to make things more difficult for people who don’t do the things they should, like saving up for retirement.

So, if you really want to blame an agency for the tax laws you don’t like, blame Congress...except

that doesn’t really work because Congress, in a twisted sort of way, would just blame it on the IRS. Yes, that’s right. Congress, which is responsible for most tax laws, often blames the IRS for things it doesn’t like and then cuts its budget as “punishment.” Does that sound fair or sensical to you?

Despite the fact that it’s not really right or fair for Congress to blame the IRS for its own shortcomings, its budget cuts hurt everyone. For starters, they reduce revenue for the Federal government by cutting the very funds the IRS uses to go after people who skip out on their taxes or commit tax fraud.

And the worst thing of all is that all of this pressure and loss of funding is only going to make the IRS more aggressive and more annoying. Since it won’t be able to go after as many fraudsters, it will have to come down super hard on those it does catch. This is all a big mess with the IRS getting the short end of the stick. Hopefully, before too much damage is done, Congress will realize that cutting IRS funding was a very, very bad idea.

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What To Do When You Can't Pay the IRS

There are many reasons why a person might owe money to the IRS. The reasons, however, are not what’s important. What is important is paying the money that’s owed. If you’re unable to do that, then you do have a few options. Make sure you pick one of these smart ways to pay, rather than doing something drastic and potentially illegal!             

File Anyway

If you’ve done the math and have realized there’s no way you can pay your taxes this year, file anyway. Remember, you are legally required to file taxes each year. If you don’t, you’ll face penalties for filing late, which would only be added to that money you can’t pay. You can request extensions and find ways that make paying your taxes manageable. In fact, that’s what you have to do because just failing to file and ignoring the problem isn’t going to get you anywhere.

Pay in Installments

For most people, paying the monies owed to the IRS isn’t the problem; the problem is being asked to pay it all at once. Fortunately, the IRS will almost always work out payment plans with people who owe. Those who owe less than $50,000 can fill out an installment agreement request (Form 9465). If you owe more than that, talking to an IRS agent individually may result in a payment plan you can manage.

Talk it Out

Finally, no matter what, remember that you can’t hide from the IRS. If you’ve gotten yourself into a bad situation and are unsure how to “pay it away,” contact the IRS and ask about your different options. Or, you could also work with a financial advisor to come up with a “payback plan.” The important thing is not to hide from your financial problems but to be proactive and willing to fix them.

Remember, everyone makes mistakes and gets into tough financial situations. Don’t fault yourself for that; just find the right way to get out of the situation.

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How to Not Pay Taxes on Social Security Income - Legally

Once upon a time, social security income was always tax free. Then, for a long time, it was thought of as something that only the rich had to pay. Nowadays, however, more and more people of average income are finding themselves stuck paying social security income, and the unfortunate thing is that they really don’t have to. There are many legal ways to avoid paying social security income; you just have to know a few “tricks of the trade.”

Be Careful About Conversions

One of the most common reasons that people find themselves suddenly forced to pay taxes on their social security income is because they’re not cautious enough about IRA conversions. Simply put, when you choose to convert a traditional IRA to a Roth IRA- which can be a smart move if it’s done correctly- you can inadvertently go over your funding limit. When that happens, you can find yourself past the income threshold and thus forced to pay social security taxes. To keep this from happening to you, always speak with a financial advisor before you make any kind of conversion and keep a close eye on your funding limits to avoid going over.

Keep Retirement Income Diverse     

As long as you’re staying within the income threshold for your status, you should avoid paying social security taxes altogether. If you do happen to exceed those limits however, do yourself a favor by finding ways to at least reduce the amount of tax you’ll have to pay. An easy way to do that, if you find yourself in this position, is to diversify your retirement income. Withdraw from different types of accounts, like your Roth IRA, your savings, and/or your CDs, staying within the approved limits on each, so that you get more while still paying less.    

Plan Ahead

Another important thing you can do to reduce or even eliminate social security income taxes is to plan ahead! When you work with a financial advisor, you can do smart things like stagger IRA withdrawals and pay taxes every few years instead of every year. A good advisor and proper planning and forethought on your part will really make all the difference.

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Hobby or Business?

If an individual, partnership, estate, trust, or an S corporation engages in an activity that is not conducted as a for-profit business, deductions are limited to the amount of income from the activity. This rule does not apply to corporations, other than S corporations. If an activity is considered a for-profit business, deductions can exceed income, allowing the resulting loss to offset other income.  

Determination

In determining whether an activity is a hobby or a business, all facts and circumstances are taken into account. No one factor can make the determination. The following list is not intended to be all inclusive.

1)  Manner in which the taxpayer carries on the activity. Factors that may indicate a business include maintaining complete and accurate books and records, carrying on the activity substantially similar to other profitable activities of the same nature, and changing operating methods and techniques to improve profitability.

2)  The expertise of the taxpayer or his or her advisors. Factors that may indicate a business include knowledge of the taxpayer, or consultation with those who are knowledgeable about a particular industry, then using that knowledge to try and make a profit.

3)  The time and effort expended by the taxpayer in carrying on the activity. Factors that may indicate a business include spending a lot of time and effort in the activity, particularly if the activity does not have substantial personal or recreational aspects.  Taking time away from another occupation may also indicate a profit motive. Spending little time will not be counted against the taxpayer if qualified employees are hired to carry on the activity.

4)  Expectation that assets used in the activity may appreciate in value. Even if no profit is made from operations, if the value of land or other assets in the activity appreciate so that an overall profit is made from a sale, the activity may be considered a business.

5)  The success of the taxpayer in carrying on other similar or dissimilar activities. If the taxpayer was successful in the past turning an unprofitable venture into a profitable venture, the current activity may be a business even if it has not yet made a profit.

6)  The taxpayer’s history of income or losses with respect to the activity. Early losses during start-up will not count against the taxpayer, but continued losses after the customary start-up stage that are not explainable may indicate a hobby. Losses sustained due to unforeseen circumstances, such as casualty or thefts beyond the taxpayer’s control, will not count against the taxpayer. Any series of profitable years are strong evidence the activity is a business.

7)  The amount of occasional profits, if any, which are earned. The amount of profits in relation to the amount of losses, and in relation to the taxpayer’s investment in the activity, may indicate intent. An occasional small profit one year, mixed with large losses in other years or large taxpayer investments, may indicate the activity is a hobby. Substantial occasional profits mixed with frequent small losses or investment may indicate a business. An opportunity to earn substantial ultimate profits in a highly speculative venture also indicates a profit motive.

8)  The financial status of the taxpayer. If the taxpayer does not have substantial income or capital from other sources, the taxpayer may have a profit motive. If the taxpayer has substantial income from other sources, and losses from the activity in question generate substantial tax benefits, the taxpayer may not have a profit motive.

9)  Elements of personal pleasure or recreation. Where there are recreational or personal elements involved with the activity, a lack of profits may indicate a hobby. On the other hand, a lack of any appeal in the activity other than possible profits indicates a profit motive. It is not necessary that the sole purpose for engaging in an activity is to make a profit. The availability of other investments that might produce a higher rate of return will not count against the taxpayer. The fact that a taxpayer derives personal pleasure in the activity is not sufficient in itself to classify the activity as a hobby if other factors indicate the activity is a business.

Presumption of Profit

IRS rules state that if an activity is profitable in three of the last five tax years, including the current year, the presumption is it is carried on for profit, and the hobby loss limitations do not apply. If the activity consists primarily of breeding, training, showing, or racing horses, the IRS will presume it is carried on for profit if a profit is produced in at least two of the last seven tax years, including the current year.

Reporting Hobby Income and Expenses

Occasional profits from hobby activities are not subject to self-employment tax, and losses from hobby activities cannot be used to offset other income.

Preparing for an Audit

So, you’ve recently received notice that you’ve been selected for a tax audit. Lucky you! In all seriousness, though, once you have been chosen for an audit, there’s nothing you can do to change that fact. All you can do from that point forward is to try and prepare for the audit.

First things first, you need to know what kind of audit you’re facing. Possibilities include:

l  Correspondence Audits: requested when the IRS simply requires more information/proof related to your tax return

l  Taxpayer Compliance Measurement Program Audit: The most serious type of audit in which every part of your tax return must be backed up.

l  Office Audit: An audit conducted at a local tax office. Specific information will be requested ahead of time.

l  Field Audit: An audit conducted at your home or office. Specific information may or may not be requested ahead of time.

Once you know what type of audit you’re facing, tax audit preparation is a lot easier. Your accountant will know, based on the type of audit, what documents you need and how you need to get prepared. So, find out from the IRS what type of audit you’re facing and then work with an accountant to get ready. As long as you’ve been reasonably honest and accurate with your tax dealings, you have nothing to worry about!

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Audits and Representation

Representation

Individual taxpayers who are under audit by the IRS may attend the audit in person without any assistance from a tax professional. However, this can be a dangerous mistake. Although not officially stated, it is the job of an IRS Revenue Agents to conduct an audit with an eye toward finding additional tax owed. With so many gray areas in tax law, and considering the tax code’s complexity, an individual who chooses to go it alone is a sitting duck. Without extensive tax education and experience, the examiner can (and sometimes will) say anything to find additional tax due on the return. Without the necessary knowledge, the taxpayer is powerless to refute the agent’s rationale.

Selection of Returns for Examination  

Search for Unreported Income

The IRS performs matching functions to reconcile information reported on Forms 1099 and W-2 with information reported on the taxpayer’s return. If income reported by the taxpayer does not meet or exceed amounts reported to the IRS, the taxpayer will receive either a bill for tax on the difference or an audit notice.

Worker Reclassification Efforts

The IRS conducts joint employment audits with state tax agencies to determine whether workers classified as independent contractors are in fact employees. One initiative looks at employers who issue both Forms 1099 and W-2 to the same employee in the same year, while a second examines employers issuing more than five 1099-MISC forms exceeding $25,000 each to contractors with no other source of income.

Schedule C, Profit or Loss From Business

Issues associated with sole proprietorships are common audit triggers. The IRS has several approaches to achieve an increase in income tax, as well as the assessment of self-employment tax.

•    Unreported income. There is a relatively high potential for unreported income from cash transactions with sole proprietorships. The IRS will examine the taxpayer’s bank records to detect deposits that are unaccounted for, compare revenue and expenses of similar businesses, and in some cases will perform a “lifestyle” audit to reconstruct income based on changes in the sole proprietor’s net worth based on valuation of assets.

•    Losses. Significant losses reported on Schedule C, or losses continuing over two or more years, may increase the chance of audit. If the IRS is successful in reclassifying an activity as a hobby instead of a forprofit business, losses will be disallowed.

•Bartering. The fair market value of products and services received through bartering can be considered business income if the products or services rendered are associated   with the sole proprietorship. If the sole proprietor trades through a barter exchange program, the program will issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.

Audit Procedures

Soft Notice

The IRS uses the Automated Underreporter (AUR) Soft Notice to encourage taxpayers to self-correct income reporting with minimal burden and resources. Notice CP 2057 is issued to certain taxpayers with apparent underreported income. The form informs the taxpayer that there appears to be a discrepancy with the income types listed but does not provide them with any type of calculations. It instructs the taxpayer to file a Form 1040X to correct their return if the information shown on the notice is correct. The IRS does not directly follow up these notices but taxpayers that repeat their behavior will be identified in the following tax year.

Examination by Mail

The taxpayer receives Notice CP 2000 from the IRS disclosing proposed changes. The taxpayer typically has 30 days to respond and has three options to the IRS proposals.

•  To agree with all the proposals.

•  To partially agree with the changes.

•  To dispute all the changes proposed by the IRS.

The taxpayer is allowed to sign an authorization that enables another party to represent him or her in connection with the Notice CP 2000. The authorization is part of Notice CP 2000, and a separate power of attorney is not required.

Field Audit

The revenue agent will send a letter to the taxpayer requesting that the taxpayer phone the agent. At that time, the date, location, and agenda for the first meeting will be set. The taxpayer has the right to request that the examination take place at a reasonable time and place that is convenient for both the taxpayer and the IRS.

Audit Strategy

The best way to prepare for an audit is to put oneself into the auditor’s shoes. Take the perspective that you are looking for anything possible to increase the tax liability on the return. This is an area where a qualified tax preparer can be invaluable.

Pose tough questions and “throw out” any questionable deductions. Make sure any issue raised during an audit is something that has already been considered. If the pre-audit function is performed properly, the actual audit will be more comfortable, and you will be prepared for any negative adjustments.

Audit Video

The IRS has created a video web page to assist taxpayers preparing for a small business audit. Go to the IRS website at www.irsvideos.gov/audit.

Requesting a Different Auditor

A taxpayer or taxpayer’s representative has the right to request a different auditor if the current one seems uncooperative, too busy, or too inexperienced to properly consider the issues under examination. The request should be made to the auditor’s supervisor by phone or in writing and should include a detailed explanation of the reasons for the request.

Take It Seriously

Any comments made to an IRS employee that could be interpreted as a threat against the employee will be taken seriously and fully investigated. Advise clients not to joke around with IRS employees during an examination.

Repeat Examinations

If a return was examined for the same items in either of the two previous years, and no change was proposed to the tax liability, contact the IRS immediately and the examination will likely be discontinued. This policy is in accordance with IRC section 7605(b), which states that no taxpayer shall be subjected to “unnecessary examinations.”

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