Awards & Recognition
What to Do If You Get Audited
If you received an audit notice from the IRS, your first action should be to consult a lawyer, especially if you’re aware of any intentional misrepresentations in the returns under audit. It’s crucial to understand your rights in an audit. Despite the intimidating nature of the IRS, you have the right to challenge the audit results if they seem incorrect or unfair.
Start by preparing all necessary documents, records, or information for the IRS. Since not everyone is good at keeping organized, thorough records, gathering everything might take some time. At the Tax Law Offices of David W Klasing, our Dual-licensed Tax Audit Representation Attorneys & CPAs can assist in communicating with the IRS and arranging for necessary extensions of time while complying with Information Document Requests (IDRs).
Understanding Why You Were Selected for Examination
The IRS Restructuring and Reform Act of 1998 (RRA 98) Section 3503 stipulates that the general criteria and procedures for selecting taxpayers for examination must be published. If you’re under criminal tax investigation or your attorney inquires about why you were chosen, the IRS examiner must provide as accurate an answer as possible without disclosing restricted information. However, even subtle inquiries regarding criminal tax exposure must be handled with extreme care as just the mere inquiry can cause increased IRS scrutiny.
Top Reasons for Tax Audits
Generally, two main factors lead to an IRS audit. The first relates to taxpayer characteristics that the IRS finds intriguing. In contrast, the second involves red flags due to discrepancies in your submitted information, failure to file, or other tax issues.
Taxpayer Characteristics
In some instances, your characteristics might imply a higher-than-average risk of fraud. Alternatively, the IRS might target specific characteristics to maximize the return on its audit dollar. For instance, high-income taxpayers are more likely to face an audit, as are small business owners, those involved in cash businesses, or individuals with significant financial changes. Moreover, due to efforts by the IRS and DOJ to eliminate offshore tax evasion, individuals holding foreign assets and accounts or filing international tax returns face elevated audit risk.
Problems with Taxes
The IRS uses a “Discriminant Function System” (DIF) to score all tax returns. The DIF identifies a potential for change based on past IRS experience with similar returns, while the Unreported Income DIF (UIDIF) achieves the return for potential unreported income. IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items most likely to need review. This mechanism helps allocate IRS resources effectively.
People who report zero income or fail to file taxes are more likely to be audited. Other mistakes easily identified by IRS computer systems include failures to include all income sources, deductions, or tax credits inconsistent with similarly situated taxpayers and failures to disclose foreign accounts.
How the IRS Decides Which Tax Returns Are Audited
The IRS uses several criteria to choose auditing returns:
- Potential involvement in abusive tax avoidance transactions;
- Computer scoring using the discriminate function system and the unreported income function;
- Large corporate filings;
- Information matching to reconcile a taxpayer’s tax return with related third-party information;
- Related examinations, where returns are selected because of transactions or business with another audited party; and
- Local compliance initiatives, such as focusing on certain tax return preparers or tax preparation companies suspected of aiding in income tax evasion or incompetence.
Common Triggers for a Tax Audit
Identifying all potential triggers for a tax audit is challenging, but specific triggers are more prevalent:
- Discriminant Information Function (DIF): This program identifies statistical anomalies and conflicting data in taxpayers’ annual returns;
- Taxpayer’s Income Level: Those with an income level of over $500,000 yearly are more likely to face an audit;
- Depositing Large Sums of Money: Regular deposits of at least $10,000 into an account can trigger an audit;
- Self-Employed Workers: These individuals often claim deductions incorrectly to lower taxable income;
- Operating a Cash Business: Businesses that accept payment primarily in cash are often audited due to concerns about unreported income;
- Utilizing or Having Signature Authority Over Foreign Financial Accounts: The IRS wants to ensure you report investment, retirement, and business income earned offshore.
If you’re facing a tax audit, having a dually licensed Tax Attorney and CPA is essential to protect your interests and liberty.
Why You Need the Expertise of David W. Klasing in Tax Disputes
When dealing with federal tax audits or investigations in Phoenix, having an experienced and highly qualified representative by your side is not just a preference – it’s a necessity. At the Tax Law Offices of David W. Klasing, we offer more than just legal representation; we offer peace of mind, assuring you that an authority in the field is managing your case.
David W. Klasing, a licensed Tax Attorney, and CPA, brings almost 30 years of experience to bear on your case. His background is further enhanced by a Master’s degree in taxation, enabling him to help various businesses and individual taxpayers maneuver through the labyrinthine landscape of audits conducted by the IRS and other federal agencies. His extensive record is self-evident, guiding numerous clients to the best possible civil and criminal tax outcomes based on their individual circumstances.
David’s dedication goes beyond fulfilling basic professional requirements. He continually exceeds standard expectations by continuing professional education as a CPA and a Tax Attorney. In addition, he actively participates in various online tax list services, ensuring he remains at the forefront of the tax profession. This commitment to staying current with the latest developments means that you, the client, benefit from the most up-to-date knowledge and strategies.
If you’re grappling with complex federal tax issues in Phoenix, Arizona, don’t hesitate to contact The Tax Law Offices of David W. Klasing. Our dedicated satellite office in Phoenix, available by appointment only, is set up exclusively to handle these matters. Opting for our services means investing in first-rate tax defense supported by outstanding experience, impeccable credentials, and a record of success. We prioritize cost-effectiveness, absorbing all travel expenses courtesy of our instrument-rated private pilot, David W Klasing, who pilots a fast and economical Cirrus SR22. To take advantage of our newly implemented half-day scheduling option without additional travel costs, contact us at 800-681-1295 or complete our online contact form.
