Page 78 - August Life In Naples Magazine

finance WHY AM I BEING AUDITED

BY THE IRS?

process, and even though it is a legitimate tax benefit in which the
adoptive parents will have substantiation, it also equates to a tax
credit that can spread out over numerous years and result in paying
by Michael Wiener, E.A. little or no tax. Because of this, the IRS flags these tax returns
W ith the 2018 filing season currently behind us, to overestimate both eligible expenses and the percentage or square
frequently.
The home office deduction is another area where people tend
notices have started to appear in mailboxes. While
the IRS letterhead strikes fear into the hearts of
can also generate a business loss, resulting in paying little or no
most Americans, a vast majority of those notices are nothing to footage of the home being used for the deduction. This deduction
fear, since most of them are computer-generated and referring taxes. Because of this, the IRS is likely to flag tax returns that have
to outstanding tax bills you haven’t paid yet or errors on your tax suspiciously large home office deductions.
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return that can be easily addressed. Simply getting an IRS notice is Someone tipped off the IRS that you could be cheating on your
not indicative of an audit. taxes.
With the numbers in for 2016 tax returns per the release of The IRS has a whistleblower program that awards up to 30
the IRS’s 2017 data book, fewer than 1 percent of individual tax percent of the taxes collected and resultant penalties. If your ex-
returns were selected for a field or correspondence audit, which spouse suspects that you fudged your Goodwill donations or that co-
gives most people a 1-in-160 chance. But the Taxpayer Advocate worker who doesn’t like you overheard you say, “They never check!”
Service watchdog group says that it’s actually 6.2 percent of tax with respect to that side hustle you didn’t report, it’s possible they
returns, or a 1-in-16 chance of being audited. While audits demand could’ve anonymously tipped you off to get a quick payday.
back-up material and examining your past tax returns opposed 4 If you’re a small business owner or freelancer and someone
to simply fixing errors or paying your unpaid tax bills, some of with whom you do business was audited, you have an increased
those computer-generated notices are more pernicious in their likelihood of being audited.
documentation requests and count in that 6.2 percent. “Audit flags” Even if your client, supplier or other business associate was not
that don’t merit a full tax return audit but a partial one also count. committing tax fraud or malfeasance but simply got audited, people
and companies that they paid or received money from are likely to
HERE’S WHAT YOU NEED TO KNOW ABOUT THE IRS AUDIT PROCESS. be next. If they didn’t correctly report payments made, the IRS will
1
You were incredibly unlucky and got randomly selected. want to see how the payers’ or recipients’ tax returns also match up.
While random selection has a low probability, most audit flags
In 2017, only 934,000 tax returns were audited, with 71 percent of
are beyond your control. Always have proper substantiation in case
them being done by mail.
you get that information request.
The IRS always audits an incredibly tiny sample of tax returns.
Please call our office to be your dedicated resource to take the
But if you are low or middle income with a relatively simple tax
stress out of resolving your IRS notice in the shortest amount of
filing situation and wondering why you’ve been audited, you were
time possible.
part of that tiny random selection.
2 Your tax return has a common audit flag. If you should have a topic that you would like me to
Even if you have legitimate deductions, credits and income discuss or if you should have a question, please feel free to
substantiation, there are certain lines on your tax return that are call 239.403.4410 or e-mail me at
rife with errors and fraud across the board. These include the michael@mwtaxandaccounting.com.
charitable contribution deduction, home office deduction and
4280 East Tamiami Trail
adoption tax credit.
Executive Suite 302-M | Naples, FL 34112
Specific tax benefits prone to error and fraud like the Earned
An enrolled agent, licensed by the US Department
Income Tax Credit have their own separate due diligence process.
of the Treasury to represent taxpayers before the IRS for
But the above three items are the most common triggers for an
audits, collections and appeals. To attain the enrolled agent
audit, even just partial audits, given the vast propensity people
designation, candidates must demonstrate expertise in
have in underestimating these items and not having them properly
taxation, fulfill continuing education credits and adhere to
documented. People tend to overestimate the value of non-cash
a stringent code of ethics.
charitable contributions and frequently lack the substantiation for
these deductions. Adoption is an incredibly long and expensive
78 Life in Naples | Aug/Sept/Oct 2018