All those new IRS agents were not hired to just sit around.
I got audited and it turned out to be pretty simple for me, in my case I didn’t deduct anything fancy, for instance meals, I only deducted straightforward stuff like tools, vehicle and office portion of house, business phones, advertising, all obvious and with firm receipts and bills.
The audit was probably because my accountant and his firm were arrested and convicted for cheating for their rich clients, offshore deals and such.
The author didn't explain the parameters of "highly compensated." He referenced <$200K but that's pretty broad.
Trump should transfer all 87,000 IRS agents to ICE. Send them to the border.
The IRS likes to audit people it can get serious money from??
You mean like waitresses tips???
IRS = American Gestapo
As a CPA, I handled hundreds of IRS audits over the years. Big businesses, small businesses, individuals, corporations, non-profits, tax fraud cases, all the way through tax court when necessary.
Many of the audits I handled were to fix the screw ups of other CPA’s who didn’t know how to represent people in audits. Several times I had to amend a client’s return after the audit was completed by another CPA just to reopen the case and have a second audit on the same return, where I got the previous audit assessment reversed.
My first and most important advice is to get a tax professional who knows what they are doing. Just because they have the credential does not guarantee they know what they are doing.
Second, do not use your tax preparer to handle the audit. This is for several reasons. Often preparers make mistakes and try to cover them up in the audit. The taxpayer then gets screwed.
I’ve often used preparer mistakes to have penalties removed as it was not the taxpayer’s fault.
Further, with the preparer penalties now being enforced by the IRS, it creates an adversarial relationship between the taxpayer and preparer. This conflict of interest to save their own neck should prohibit them from representing you in the audit.
99% of the audits I handled were on returns NOT prepared by me. I was a liason between the IRS and the state society of CPA’s to resolve problems between CPA’s and the IRS field agents. To use the regional IRS Director’s own words to me, “Occasionally our agents wander off the farm and we need your help to reel them back in.” There are bad agents and they need their wings clipped.
Lastly, do not get emotional about the tax audit. Do not get angry. It is more of a psychological chess game than a confrontation.
You are dealing with a big bureaucracy. Use it against itself. Field agents generally have no idea that appeals agents give away most of their assessment. There is no reason to confront the field agents. Just agree to disagree and maintain a good working relationship.
I taught many programs with the IRS. I was a tax law professor at a major university and taught many professional tax courses for CPA’s and attorneys. The university asked me to teach a class on handling IRS audits, and I refused. The last thing I want to do is educated IRS agents about the strategies used to win.
Years ago I had a IRS field agent business auditor say to me, “I feel like these audits are just teaching people how to get away with cheating.” Contemporaneous documentation is the key to winning. Most tax court losses are due to inadequate documentation.
Boy does this hit home. The IRS has suddenly come after me and my wife, saying we didn’t pay our 2018 taxes. We’ve been going round and round with them for MONTHS. We’ve sent copies of everything, including all the checks they cashed, yet they claim we haven’t paid for that particular year. I’m convinced it’s because we’re conservative. Aaargh.
In addition to documentation matching programs to identify unclaimed income on returns for audit, the IRS runs the data on a return through a differential equation that identifies the probability of there being a major error on a return.
They call this a “Diff Score.” The higher the Diff Score the greater the changes for an audit. Each year the IRS starts with the highest Diff Scores and works their way down the list, based upon time and agents availability.
I’ve had IRS audits revoked from happening, just by having the audit transferred to another IRS Office who was busy working on higher Diff Scores and couldn’t do the audit.
Knowing the top secret algorithm of the differential equation takes years of experience as even the IRS agents are not allowed to know the equation. This was explained to me by top IRS programmers in Washington DC that worked fill time on the equation.
I worked to fine tune the program to eliminate unnecessary audits. For example, if a clergy with 50% of their compensation as non-taxable Housing Allowance and they tithed 10% of total income to the church, that showed 20% of taxable income as a donatation and flagged them for audit.
By tweeking the program to consider non-taxable income and profession, we solved the problem of unnecessary audits.
Ask if the politicians have been audited like Pelosi and McConnell etc. Too many make 10’s of millions in short order.
The IRS will sometimes ask if you use Quickbooks or Peachtree, and then they will ask for a copy of your data files. Never agree to this!
It gives them carte blanche to fish through all of your records. Provide only the specific records they want, and then only on hardcopy.
Get a lawyer