Your IRS Problems Can Be Fixed With These Audit Tips

If you have IRS issues, one piece of mail you do not want to receive is a notice from the IRS saying that you're being audited. Don't be alarmed if you receive one. You can breeze through your audit and leave your problems behind with these tips:

• Dismissing the notice will not make it go away! The notice will ask you for a response in a specific amount of time (often thirty days). If you do not respond promptly, the next notice from the IRS might be a bill.
  
  
• Read the notice carefully and follow directions, as the items you need to take to the audit are on it.
  
  
• Save both you and the auditor time by organizing the documents needed for the audit beforehand.
  
  
• Records missing? Request duplicates for the required records you're missing. The audit process will be delayed by missing documents. You have to support your case with records. Don't expect the auditor to request the records for you. This is your responsibility.
  
  
• Bring the necessary documents to the audit. Don't bring any extra documentation to the audit. If a query arises about information that wasn't requested, just tell them the information is at home. The issue will be dropped.
  
  
• Leave your attitude at home.It will not help if you attend the audit angry. If you're courteous and polite, the audit is a piece of cake and the auditor will see things your way.
  
  
• Make duplicates of the required documentation to present to the auditor. If you give the auditor the originals, you won't get them back if they get lost. If you do not have the opportunity to have copies made, ask the auditor to make duplicates for you. Take the originals with you after the audit.
  
  
• Keep what you say at a bare minimum. "Yes" and "no" are safe answers. Supplying the auditor with more information than is necessary will provide him a reason to require even more documentation. For example, you'll be indicating an increase on your income if you tell him that you have purchased a new car or home. This is a red flag to the auditor for the need to investigate you more.
  
  
• As a taxpayer, you have rights. The best option would be to settle at the audit but when needed, know that the right to an appeal is yours.
  
  

Interest Charges

You give yourself IRS problems if you pay your taxes late or don't settle at all. Unpaid tax is considered as borrowed money and the U.S. Congress requires the IRS to charge interest on unpaid taxes. Furthermore, you're also subjected to penalties for late payment.

You'll know you're being punished by the IRS with the interest and penalties on your late/unpaid taxes. The tax bill will double or triple up before you know it. It's because interest is computed against the entire balance, starting on the date the tax was due, and penalties are assessed and compounded on a daily basis.

You will be charged interest, notwithstanding why you have late/unpaid taxes, even if it's just a mathematical error. Compounded on a daily basis and posted every 3 months, interest can go from 4% to 10%, and won't cease to grow until payment is made.

One of the first steps you have to do is ask for a detailed penalty and interest printout. This explanation will show: 1) lists of all your tax penalties and interest computations; 2) dates, interest rates, penalties assessed, and credits for payments or refunds; 3) interest and penalty charges on tax amounts; 4) penalties that were already applied; 5) an account summary reflecting amount due, including updated penalty and interest figures.

Interest may be reduced or cancelled if you are eligible for an Offer in Compromise. Due to IRS delays or if applied in error can only be instances when interest is abated or cancelled. You can determine if the interest and penalties charged to you are truly correct with the help of our office.

What is Tax Evasion

Tax evasion can be any of 2 things: a taxpayer willfully and knowingly attempted to evade taxes, or a taxpayer owes more tax in addition to what's declared in his tax return.

Tax evasion is a federal offense because the person tries to evade settling federal income taxes. This crime could put you in prison with a maximum sentence of five years and a fine of $100.000.

It doesn't matter how much tax is owed, it only has to be proven that the taxpayer willfully and knowingly evaded taxes.

Penalties for Tax Evasion

Possible criminal prosecution and penalties await tax evaders. Here's a partial roster of civil and criminal penalties:

Civil penalties:

• Failure-to-file penalty can't be more than twenty-five per cent of your tax not paid, five per cent of your tax not paid every month or a fraction thereof.
  
• Failure-to-pay penalty is half of one percent of your unpaid taxes each month or a part thereof, but not above twenty-five per cent.
  
• Tax penalty for frivolous return for when you file a return that does not have sufficient information to determine the correct tax or a return that shows an incorrect amount is $500.
  
• Accuracy-related penalty is 20% for understatement of income tax, or underpayment due to disregard of rules and negligence.
  
• Information reporting penalties: From $15 to $50, depending on how late the information return is filed.
  

Criminal penalties:

• Evading taxes
  
• Fraud and false statements
  
• Filing fraudulent returns
  
• Willful failure to file a return
  
• Supply information
  
• Pay any tax liability
  

These are criminal penalties and you can be brought to trial.

Offer in Compromise: File It Right

If you're experiencing IRS issues, a resolution would be an Offer in Compromise or OIC. The IRS will make deals with taxpayers. Your tax liability can be resolved by an OIC. The IRS has the authority to accept less than full payment under some circumstances.

Examine the IRS Form 656 literature before filing an OIC. You will determine if you qualify for an OIC.

There are some conditions that should be satisfied to be eligible for an OIC and these are:

• Doubt as to collectibility - This is uncertainty on the IRS's part that it'll be able to collect your liability from you now or in the future.
  
• Doubt as to liability, meaning there is doubt on the accuracy of the assessed taxes or that you even owe the tax bill.
  
• Effective tax administration by proving that paying the tax bill is unjust as it'll cause you extreme economic crisis.
  

How Much Must You Offer?

The amount of the OIC is calculated by your assets' realization value and the money that the IRS could collect from your future income.

The realization value of your assets is calculate by the IRS utilizing a "quick sale value" (twenty per cent less than fair market value). Debts on the asset aren't included.

When coming up with this amount, you can exclude most of your household assets and personal effects. You will have to include luxury items such as fur coats and antiques.

The balances of your retirement plans also must be included, minus the taxes and penalties connected with cashing them in, and an explanation of how you came to the figure you supplied.

The IRS Collection Process (IRS Publication 594) has a score of items that you can exclude from your asset calculation.

You deduct your essential living expenses from your total monthly income to establish your future income. This is considered your disposable income. The number associated with the payment plan you propose to use is then multiplied with this amount.

Payment Plans

• Deferred offer - your future income multiplied by the months left on the statute of limitations.
  
• Short-term deferred offer - settlement after 91 days but within 2 years after the IRS acceptance notification (future income x 60).
  
• Cash Offer � You will pay in full within five months of IRS notification that the OIC has been accepted. Multiply your future income by 48.