Tax Audit Red Flags: Separating fact from fiction

Tax Audit Red Flags: Separating fact from fiction

Tax audit red flags: separating fact from fiction. It is that time of the year again, when the early tax filing season is upon us and interest not he IRS is at a yearly high. In response, you will see article published claiming to give you the “secret sauce” on how to avoid an IRS tax audit, by warning you of “red flags.” There articles are all fine, I suppose, if this was 2008. However, the IRS has changed drastically since then. In this article, we will discuss what the real audit red flags are, and what is just sort of things are outdated. 2008 marked the high-water mark of IRS examinations. However, since then, the IRS field examiners are dwindling in supply. What this means is that for most people who used to be under threat of an audit, really aren’t. However, a strange by-product is that certain people are in much more likely to be audited. The philosophy of the IRS examinations was to spread the misery around equally. Everyone was subject to audit. But now, there is an entirely new way of thinking about how the IRS actually selects individuals to audit. Old: Ensure compliance all around Now: Where is the highest return on investment (ROI) of auditors’ time. So…what can be done automatically? The highest ROI is usually find where no or few IRS employees are needed. For instance the IRS has an Automated Underreporting Unit. Leaving off income items, like 1099s can result in an automatic adjustment. The IRS send you a notice (usually a CP2000) to let you know they intend on increasing your income tax, they also give you an opportunity to contest. A common area of contesting these assessments is when the IRS doesn’t take into account your basis, or cost of the property you sold. If the IRS get a 1099s for you selling real estate and stock, the IRS may consider all of the proceeds as income. Yet we know this is very unlikely — real estate and stocks cost you something . What aren’t Red Flags. These things used to be Red Flags, but perhaps are now yellow flags. Why, because it actually take an audit to determine if it is worth it to audit you! The IRS would rather now for sure an audit will likely lead to an increase, not could. But likley. Making a lot of money Higher than average deductions Claiming rental losses. Taking large charitable deductions. Hobby losses Deducting meals travel and entertainment. Claiming 100% business use of vehicle Claiming professional trader in order to immediately utilize losses instead of being limited to $3000 per year offset. Not reporting gambling wins. Claiming home office deduction Large cash deposits. Running a business. So what has the maximum ROI per employee hour worked? Very hard to beat foreign returns with foreign income — they can be penalty minefields — and obviously so. An expert on intentional taxation can look at a return and find facial errors that would lead to an automatic $10,000 penalty. It is actually pretty easy ti determine if a Form 5471, Form 8938, Form, 3520-A, Form 3520, or a Form 926 needed to be filed, but wasn’t. It is easy to determine if they are o substantially complete to be counted as being filed. And these five forms — each has a $10,000 penalty that could be assessed easily. For multiple years. So do you see how the IRS would be interesting in auditing an international return of moderate complexity? The problem is that with foreign assets and income. Your options are to: leave it off and face the prospect of huge penalties that could destroy you if detected. Do it yourself and hope for the best. Yet reporting can increase your audit risk. Hire a firm experienced with winning IRS international audits to minimize any a penalty exposure. What if you haven’t been reporting foreign income properly? The good news is that most people qualify for a streamlined disclosure program and this can really eliminate any penalty potential. We have submitted hundreds and not one has been audited as of today. For help contact us today. We help US taxpayers around the globe. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 Skype: skype@irsmedic.com Email info@irsmedic.com https://youtu.be/Dqi-PG6YvJM IRS Medic