IRS Audits represented by Scott Allen EA

Receiving a letter from the IRS notifying that one or more tax years are being audited is unsettling to say the least. I find that most clients fall into two categories with IRS audits. Those that properly filed their returns with support for their deductions and those that knowingly took deductions that they knew were questionable or they lack support for deductions on the tax return.

Let’s look at the first group. No problem here. If one contacts the IRS as soon as possible after receiving the notice, the IRS is very agreeable to work around your schedule. Calling right before the appointment to reschedule is considered a red flag by auditors.

Keep your appointment and being prepared will be appreciated by the IRS auditor. Being prepared means having the support for your deductions in a format that is easy to verify. For example if you are being audited for office rent, have all of the invoices and checks attached to one another with a machine tape of the total. If this is done for each item under audit, your audit will be over in minutes and the auditor will have less time to ask probing questions into other areas not under review. If the auditor sees that you are organized and that deductions on the return are supported properly, the review process will be minimized and the chances of the audit expanding into other years will be avoided.

If one is in the second group, where you either took inappropriate deductions or do not have the documents to support you deduction can be a problem. These situations require the use of a professional to advise or represent you. Let me share one example to illustrate. A former client in the trucking business was being audited for his truck expenses. He lost all of his records when the contents of his storage unit were confiscated for not paying his storage fees. The auditor denied all of his fuel expenses amounting to an audit assessment of over $250,000 for the three years being audited. Much of that being interest and penalties. The auditor denied the expenses because there were no fuel receipts.

Fortunately, the client came to us for help at this point. We requested a meeting with the IRS Appeals office. We secured mileage logs from the companies that paid his for deliveries. Our client was paid so much per mile. We established support for the average miles per gallon his truck used and the average cost of fuel though out the year. We then calculated the total cost of the fuel by backing into the number with these “other support” documents. The figure was very close to the amount taken on the return. Our client was given the deduction and the assessment eliminated.

Each case should be reviewed on its own facts and circumstances. I do not charge for this initial review and recommendation. In most cases it is obvious whether professional assistance should be considered.

Scott Allen E. A.

Tax Debt Advisors, Inc.

IRS SETTLEMENTS BY SCOTT ALLEN EA

I often hear clients say, “if you can just get me out of this mess with the IRS, I will never get back in trouble again.” The truth is that 100% of our clients will be given a settlement with the IRS that in most cases exceeds their expectations. Many say, “If I knew it was going to be that easy, I would have done this years ago.”

Getting the IRS settlement is not the hard part. The hard part is breaking the habit that caused the problem in the first place. In most cases that requires adjusting one’s life style to adjust to a new expense in one’s life–income taxes–Federal, State and payroll. This amount varies, especially between individuals who are employees vs. self-employed. But let’s use a round number of 30%. If one is making $100,000, adding $30,000 in additional expenses means cutting out something else that they were used to spending money on.

The IRS estimates that about 70% of the individuals put on an installment arrangement default within one year. Experience has shown us that when clients see the reality of paying taxes, it is too easy not to pay in the “voluntary” estimated taxes, or to adjust their withholdings when “emergencies” arise. Then when it comes time to file and full pay by April 15, to keep their settlement valid–they default when funds are not available to stay current on their tax liability.

Successful resolution with the IRS is not just getting the settlement; it means that one must break habits pertaining to spending, living within a budget and making the tax payments as important as other monthly expenses. One must avoid seeing the IRS as a credit card, in the sense that you pay other expenses by not paying the IRS. Unfortunately the easiest expense not to pay is the IRS. However, it is also the hardest one to catch on as well.

Scott Allen E.A.