Archive for April, 2015

Apr
29

The IRS Taxpayer Bill of Rights

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When dealing with the IRS, you should know that you have a set of fundamental rights. You should know these rights when you interact with the Internal Revenue Service.

The “Taxpayer Bill of Rights” takes the many existing rights in the tax code and groups them into ten broad categories. Especially important are how the Taxpayer Bill of Rights cover the tax examination, or tax audit, process.

When you receive that tax audit notice from the IRS, don’t hesitate, and don’t ignore it. It will not go away and a prompt and complete reply from you is needed. You’ve only got a certain amount of time to reply to the audit notice before the IRS takes further collection action that could hurt you personally and financially.

 Your Taxpayer Bill of Rights

The Taxpayer Bill of Rights includes the following:

1. The Right to Be Informed:
Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

2. The Right to Quality Service:
Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS and to speak to a supervisor about inadequate service.

3. The Right to Pay No More than the Correct Amount of Tax:
Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

4. The Right to Challenge the IRS’s Position and Be Heard:
Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

5. The Right to Appeal an IRS Decision in an Independent Forum:
Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

6. The Right to Finality:
Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

7. The Right to Privacy:
Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections, and will provide, where applicable, a collection due process hearing.

8. The Right to Confidentiality:
Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

9. The Right to Retain Representation:
Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

10. The Right to a Fair and Just Tax System:
Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

 

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Audit ChecklistMillions of taxpayers file tax returns annually, and the IRS accepts most of the returns as they are filed.

There will always be returns selected for tax examination, also known as a tax audit, and your return could be one of them.

When your return is selected for audit, it doesn’t automatically mean that the IRS thinks you’re being dishonest about your income or your deductions.

Maybe your tax preparer made a math error, or put a number in a wrong field on your return. If you used Turbo Tax or another software application to prepare your taxes, you may have misunderstood what the program was asking and took deductions you didn’t qualify for.

Anything can trigger the IRS computer system to flag your return as one that needs a deeper look. When your tax return is selected for audit, the IRS will send you a letter and request more information, or they will write and tell you they believe a change is needed to your return.

Know your taxpayer rights

You have the right to ask the IRS to clarify and explain anything you do not understand. This is especially important when they want to make changes to your tax return that result in a higher tax bill and a balance due. Don’t blindly accept what the IRS says and agree with their proposals just because you think that will make them go away, or because agreeing seems like an easy fix.

A very common audit trigger is the income reported on your tax return

Maybe you had three jobs in one year, and forgot about one because you only worked a few weeks. Perhaps you moved, and a W-2 didn’t reach you at your new address. Your employer could have given you a W-2 with a major mistake on it, and the correct, re-issued W-2 never made it to the IRS. Maybe you received a 1099-Misc, didn’t know what to do with it, so you threw it away.

In all of these cases, the income on the tax return is incorrect. When the IRS compares the income reported on your return to the W-2’s and 1099’s filed by third-parties, the income difference will be noticed.

The IRS will send a letter asking you why you didn’t claim that income. (That is not a maybe. The income difference will be noted, and if it causes a large enough difference in tax, the IRS is going to come after you for that tax due. They will do that because that is the law. Usually, any mistake or omission causing a $50 difference in tax is enough for the IRS to go after)

In a case like this, where the problem is simply a missing W-2, it is very possible the audit could be handled via mail and/or a couple of phone calls. If the IRS agrees with your answers to their questions, or you agree and allow them to make the changes they want to your tax return, the audit could be closed. If you owe more tax, you will get a bill in the mail.

If you disagree with the IRS, you have the right to request an in-person meeting with an IRS representative. If you and the representative don’t agree, you can escalate the issue to a supervisor or a revenue agent.

Be careful trying to deal with the IRS on your own!

Be careful if you represent yourself before the IRS, even with what seems to be a “simple” paper audit. When the IRS contacts you about an audit, they have already looked at a lot of information and decided you are guilty. It’s up to you to prove your innocence.

If you make a mistake and volunteer information the IRS is not asking for, that could give them cause to open an audit on another tax return, or go deeper into the tax return in question and ask for many more details. You could say or do something that would cause the IRS examiner to flag someone else for audit. You could be involved in an audit of your personal tax return, and due to a slip of the tongue or a misplaced piece of paper, cause the examiner to open an audit on your business, and vice versa.

Guilty Until Proven Innocent

An IRS audit, no matter how small, is serious business. Don’t ignore any IRS correspondence! Get help if you don’t understand the letter the IRS sent to you, or if your correspondence to the IRS is being ignored. 

When you receive that IRS letter, get expert help. Find a tax expert in your area and ask for references and call those references. Ask for a tax pro recommendation from friends or members of business groups you belong to, request a meet and greet so you can talk to the preparer face to face and see what your instincts are regarding that person.

Even if you feel comfortable after the initial first meeting, ask for references and follow up! Make sure that tax pro is a competent one! Your income, your paycheck, your bank account, your home – everything you own could depend on it! 

 

Have you ever been the subject of an IRS audit? If so, how did that go for you?

If you received an IRS notice in the mail tomorrow stating you owed thousands of dollars, what would your first reaction be?

 

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