COMMISSIONER KNEW ABOUT IMPROPER AUDITS
President Obama announced last night that the acting commissioner of the Internal Revenue Service had been removed after disclosures that the agency gave special scrutiny to conservative groups. A Justice Department inquiry has been initiated that will examine any false statements to see if they constituted a crime.
Treasury Secretary Jacob J. Lew had asked for and accepted the resignation of the acting commissioner, Steven Miller, who as deputy commissioner was aware of the agency’s efforts to demand more information from conservative groups seeking tax-exempt status in early 2012.
President Obama noted that “it should not matter what political stripe you’re from. The fact of the matter is the IRS has to operate with absolute integrity.”
Mr. Miller, who will leave the administration in early June, is scheduled to testify tomorrow before the House Ways and Means Committee in the first of a series of hearings on the IRS activities. Mr. Miller acknowledged “a strong and immediate need to restore public trust in the nation’s tax agency. I believe the service will benefit from having a new acting commissioner.”
Members of Congress from both parties are preparing a number of hearings for IRS leaders in the coming days. The House Ways and Means Committee will hold the first hearing tomorrow, featuring Mr. Miller, who was aware of the problem in March 2012, yet told Republican senators a month later that no such singling out had occurred.
Potentially dozens of IRS employees are involved with the original targeting, the failure to correct the problem and the failure to promptly report the truth to Congress and the American people.
Attorney General Eric Holder made it clear that the criminal investigation he ordered on Friday was just beginning. He said it would be based in Washington to give it the broadest possible scope and would not be concentrating solely on the Service’s field office in Cincinnati, where the handling of non-profit applications was largely based.
WHEN AUDITS ARE A LITTLE TOO SELECTIVE
The IRS should have used a neutral test to scrutinize every group seeking a tax exemption for “social welfare” activity — Democrat or Republican, conservative or liberal. Any group claiming tax-exempt status under Section 501(c)(4) of the Internal Revenue Code can collect unlimited and undisclosed contributions, and many took in tens of millions. They are not supposed to spend the majority of their money on political activities, but the IRS has rarely stopped the big ones from polluting the political system with unaccountable cash.
The IRS looked only at conservative groups applying for the exemption, a big mistake given its power over individuals, nonprofits and corporations, and the potential for abuse. While significant, however, this is a far cry from President Richard Nixon’s interest in intimidating his political enemies through selective audits of personal tax records. There is no evidence President Obama knew about the audits by the IRS.
The groups involved were seeking not to pay taxes on large amounts of income by claiming that they promote social welfare. No one has an automatic right to this tax exemption; those seeking one should expect close scrutiny from the government to ensure they are not evading taxes.
In 2011, when the director of the agency’s tax-exempt division, Lois Lerner, heard about Tea Party applicants being singled out for review through keyword searches in applications, she ordered that the focus be broadened to all political or lobbying organizations seeking such an exemption, The New York Times reported. Agency employees didn’t seem to get the message and kept the focus, wrongly, on conservative groups.
President Obama said that he learned of the practice only when the public did late last week, and he called it “outrageous.” He promised to take action against those involved — and needs to find out whether any political appointees ordered the practice or knew of it.
IF YOU GET AUDITED
If and when you get an audit letter in the mail, what should you do? Is it better to hire a professional to represent you or attempt to represent yourself? Being subjected to an IRS audit is never a pleasant experience. However, it is often not nearly as stressful as most taxpayers believe. Generally, a disallowance of deductions by the IRS may cost you some money, but you will not be going to jail.
The IRS audit notice will usually isolate a specific area or areas of your tax return to be audited. If the issues are clearly black and white, you may not have a problem representing yourself at the audit. For example, if the IRS is questioning your charitable contributions and you have all the supporting canceled checks and receipts, the audit will be fairly straightforward.
In any other situation, however, where there is a potential gray area or technical issue, you would be doing yourself a disservice to not seek professional representation during the audit. An example of a gray area may be the business use of your car or business meals and entertainment. Technical issues may include dealing with hobby loss rules, home office deductions, and more.
Hiring a professional representative can have significant advantages:
- Overall stress reduction. Allowing an experienced professional to handle and deal with the revenue agent will certainly alleviate stress. In most cases, you will never even have to speak to an agent or attend any meetings.
- Avoid saying too much. Many stories exist of taxpayers who could not stop talking during an audit and consequently led an agent down a path he had no intention of traveling.
- Make the IRS agent as comfortable and happy as possible. Many agents prefer to deal with a representative rather than the taxpayer. Dealing with a representative is much less stressful for the agent than dealing with an anxious taxpayer.
An experienced representative and an IRS agent generally speak the same language. Since both deal with the technical aspects of taxation on a daily basis, it is much easier for a positive rapport to be established quickly.
Often the audit boils down to a negotiating process. A seasoned representative is skilled in the art of negotiation. The attorneys at the Law Office of David W. Klasing have the experience and knowledge to negotiate the best deal for you and provide truly effective audit representation.
If you have received an audit notice, contact us today and find out how we can help.
