How to survive a tax audit

NEW YORK (CNNMoney)

Tax season has finally wrapped up, but audit season is just about to begin.

The chances of being dealt an audit are low — about one in 100. But if you happen to be selected, you can take certain steps to make the process a little less painful.

1. Know what to expect.

Envisioning a visit from a suit-clad IRS agent with a briefcase? That’s not usually how an audit plays out. The vast majority, or 76%, are correspondence audits, meaning the IRS requests information by mail instead of questioning a taxpayer in person.

These tend to focus on specific items on a return — like itemized deductions for medical expenses — and simply ask for documentation, said John Lieberman, CPA at Perelson Weiner LLP. In-person field audits are broader inquiries about a tax return and often involve verifying income, he said.

In either case, you’ll likely receive a notification by mail explaining which parts of your return the IRS has questions about.

2. Don’t ignore the letter.

Shoving the letter you get from the IRS in a drawer and pretending it’s not there won’t make it go away. You’re usually given 30 days to respond, so make sure to write back promptly or certain items may be disallowed or automatically corrected. The IRS will then begin collecting on any extra tax it believes you owe, said Lieberman.

3. Get documentation together.

Once you find out what parts of your tax return are in question, you should start collecting any relevant paperwork.

The rule of thumb is to keep tax-related documents for three years from the date a return was filed. If you can’t find the documentation you need in your files, you can usually get another copy elsewhere. If you’re missing the bill for a medical expense you claimed, for example, you can contact your doctor’s office. If you donated money to a charity but lost your receipt, the charity will probably be able to send you a duplicate.

If you’re unable to get the proof the IRS is asking for, any unsubstantiated claim or deduction on your return will be disallowed, said Lieberman.

4. Stay calm.

Spending time with the IRS may not be your idea of a fun time, but it won’t help to be rude or difficult.

“Make sure you show respect for the individual on the other side,” said Mark Everson, vice president of tax service firm alliantgroup and former head of the IRS. “It’s not something you look forward to, but it’s going to go better if you’re respectful and friendly, recognizing that he or she is just trying to do their job.”

Hiding information is another obvious no-no.

“If you think you’ve made an error on your return, don’t try to cover that up — figure out why that happened and what needs to be done to correct it,” Everson said.

Lieberman recommends pointing out any mistakes — and explaining why they occurred — in a cover letter replying to your audit notification.

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IRS Update: Challenging Times To Be Sure

A former IRS commissioner looks at current state of the service — and its future

Originally posted in Accounting today on March 19, 2013
By Mark W. Everson

Now that we have reached the middle of the filing season and sequestration is a reality, let’s take stock of where it is all going at the Internal Revenue Service. My sense is that the service is getting by so far, but that it will be hard pressed to maintain taxpayer service and enforcement levels in the months ahead. This year’s filing season was already, by just about any measure, the most challenging faced by the IRS in two decades. Late congressional action; identity theft; healthcare demands; reorganizations; and a change in leadership are all in the mix, making for a bad cocktail. Add in the sequestration and it looks to be a bumpy road at 1111 Constitution for some months to come.
Let’s start with the impact of the American Taxpayer Relief Act, passed into law at the start of the year. Because of the time required to update and test systems, the late passage of ATRA forced the IRS to delay the start of the filing season. While the service estimated that over 120 million filers would be good to go at the end of January, others have had to wait additional weeks to file. Such a delay sends a shudder through the IRS, disrupting work flows and increasing taxpayer anxiety.

The problem of stolen identity refund fraud further complicates the filing season. This criminal activity has exploded in the last several years. In 2012 the service stopped several million fraudulent returns. False positives may run well below 10 percent, but this is another area where the IRS just can’t win. If computer programs are tightened in order to minimize fraud — including all too often by incarcerated felons — legitimate refunds are delayed and taxpayers howl. On the other hand, if standards are too loose, billions more go out the door at a time when we need the money. Of course, cleaning up stolen identities is a further drag on service resources, taking months, and adding to the frustration of honest taxpayers.

All this is unfolding when the service is striving to meet its looming responsibilities under the Affordable Care Act. Many of the act’s provisions require extensive systems work with unforgiving delivery deadlines. The new law demands the continuing attention of senior IRS managers at a time when the service is struggling to do its day job.

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Tax Pro: IRS Dodges Filing Season Bullet But Tough Times Are Ahead

Spring 2013  | Mark W. Everson
Re-Published from NATP TAXPRO Journal

We just wrapped up another hectic tax filing season, so now is a good time to examine the state of affairs at the Internal Revenue Service. After a difficult start, the IRS has delivered a successful filing season, but the months to come will most certainly see declines in taxpayer service and enforcement levels. Congressional dysfunction, identity theft, healthcare demands, reorganizations, sequestration, and leadership questions are all cause for concern.

The process of updating forms and testing systems required for the American Taxpayer Relief Act, passed into law at the start of the year, forced the IRS to delay the start of the filing season. The service estimated that over 120 million filers would be good to go at the end of January, but others had to wait additional weeks to file.

While such delays send a shudder through the service and agitate both taxpayers and tax professionals, it was a significant victory for the IRS to get everything in place by early March as it did. Let’s hope the Congress does better next time around. I am not holding my breath.

Identity theft and criminal refund fraud—which have exploded in recent years—constitute a real strain on the IRS and our nation’s tax and financial systems taken together. This is an area in which the IRS seeks to strike a difficult balance. Many fraudulent attempts are stopped by the service each year. However, for identities that are stolen, it can take months and significant resources for the IRS to unravel what happened, and clean up and restore proper account balances. As anyone who has been a victim of identity theft knows, this is no fun.

 

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alliantgroup: The Leader in Specialty High-Value Tax Consulting Can Help Improve Your Company’s Bottom Line

The folks at alliantgroup use their impressive resumes’ to provide small, mid-sized and large businesses with the tools and information needed to navigate the current tax code.  Having an advisory board consisting of many former Senior Executives in the IRS as well as many former policy makers from the U.S. Congress, they aggressively work with a firm’s CPA and Chief Financial Officers to assist in finding the right tax credit that applies to each and every business.

With many of the current Board of Directors having occupied positions in the U.S. Government from the legislative branch to the IRS, alliantgroup is able to provide unique insight to what type of credit and deduction qualifies and what doesn’t for each individual business or industry.  Also, these former lawmakers and enforcement officers of the IRS can find the maximum amount of deductions and credits than any other similar consulting service out there.  They work directly with the accounting departments to find and utilize every government-sponsored credit, deductions and incentive programs to help your business increase its revenue.

Co-founded in 2002 by Dhaval R. Jadav alliantgroup works to offer consulting to every sized business and the CPA houses that work with them to consult on all types to the benefits, incentives, deductions and tax credits available. It is Mr. Jadav’s philosophy that small businesses are the engine for the national economy and helping those groups to find incentives and credits helps put more money into the small business owner’s hands, which they can then use to help grow their business more.

A thriving economy is built by growing businesses that can employ more people, which in turn gives more people higher incomes, and that leads to more consumer purchasing.  It’s a self-propelling cycle and one that is created by the types of things that alliantgroup as the leader in specialty high-value tax consulting can show to businesses, which is how to curtail taxes and by increasing credits and deductions all leading to higher profits.

Alliant Group: Research and Development Tax Credit

Businesses in more than 30 industries are eligible for tax credits when they participate in qualifying research and development activities.  Alliant Group works with clients to optimize the number of roles and tasks that will qualify for tax credits.  Each year, millions of dollars in the federal tax credit programs are left unclaimed because business owners are unaware of the program.  In addition, many people assume that people in white coats perform research and development exclusively in laboratories.  Nothing could be further from the truth.  Constant efforts to improve products and services will qualify for tax credits when conducted according to the guidelines.

In the 1980s, Congress created the R&D tax credit program to encourage large manufacturing firms to embrace continuous innovation.  Expenses associated with developing new processes and products can be prohibitive without tax credits.  All of the money saved in taxes was invested in significant R&D projects that jumpstarted the entire economy.  New jobs were created and the nation recovered from a deep recession.  More than 30 years later, both parties support the R&D tax efforts of companies of all sizes.  For startup firms, R&D tax credits can be applied to the payroll taxes since these smaller firms have not reached revenue levels when the income tax credits would apply.

More than $5 billion has been budgeted each year for R&D tax credits.   Alliant Group has industry experts to work with clients to evaluate all open tax years.  The past three years plus the current year can qualify if sufficient information exists.  Improvement in the cash flow has saved many firms from the brink.  New equipment and additional expertise allows firms to break through growth barriers.  Additional projects are possible when firms have sufficient funds to invest in more R&D activities.  Alliant Group reminds all clients to ask for a tax credit study, which reveals the ways in which the R&D tax credit programs can be optimized.

Alliant Group: Work Opportunity Tax Credits

Business decisions are based on optimizing resources in ways that will increase profits and restrain expenses.  Alliant Group reminds all decision makers that some choices can be beneficial when aligned with various tax credit programs from various taxing authorities.  Incentives are designed to encourage various actions.  Work opportunity tax credits were developed to offer companies an incentive to hire people from various groups.  A job offered to someone who has been on welfare creates an opportunity to work and gain an understanding of another way to live.  Employers are encouraged to add veterans, welfare recipients and ex-felons to company staffs.

Work opportunity tax credits, or WOTC, are dollar for dollar tax credits against the business tax obligation.  Reduction of the tax burden improves company cash flow, which is the lifeblood of any business.  Alliant Group encourages business owners to consider a mixture of people who might need a new start.  In conjunction with the existing staff, these individuals will learn new skills and set a positive example for the next generation.  Few employers will create a job specifically to participate in the WOTC program, but hiring decisions are shaped around the best ways to reduce the tax burden.

States and cities have devised tax incentive programs in response to significant economic events.  Alliant Group encourages companies to look for enterprise zones and federal renewal communities where rebuilding is taking place.  Incentives to move into a deserted city can offset the moving and setup costs.  Over time, people return to the area for jobs, buy homes and place the children in school.  The result is a community that is restored through hard work and cooperation.  All of these tax programs save money for the participants and increase the tax revenue for each taxing authority.  As people work and live, businesses are established and entire communities recover.

 

Alliant Group: TCS is More Important Than Ever

In the past three years, businesses have received more audit letters than ever before.  Alliant Group has a group of tax specialists who work with clients following the receipt of a notice of audit letter.  Americans have been shocked to discover that certain businesses have to singled out for closer scrutiny.  Tax Controversy Services has raised concerns over the number of controversial audits that are being performed.  Businesses are severely affected when the IRS arrives to conduct the audit.  The operation will slow to minimal performance, which means less revenue while the auditors are present.  Concern over unnecessary audits has made the TCS team an important ally for Alliant Group clients.

Tax Controversy Services offers a number of important consulting services to ensure the client is always prepared for an audit.  The strong position taken in an audit will reduce the number of questions asked and ensure the auditors stay within the bounds of the original request.  Alliant Group clients can rest assured that these aspects of every audit are covered:

 

  • General consulting
  • Pre-examination analysis
  • Risk analysis
  • IRS service center support
  • Examination planning
  • Audit defense
  • Conference appeals representation
  • Litigation support

The IRS strikes fear in most American business owners because of the unmatched power that is brought to bear.  Alliant Group TCS specialists work diligently to answer audit questions and present facts without encouraging more scrutiny.  Careful audit preparation ensures that the client’s case is presented succinctly and accurately.  Audits will happen throughout the course of business life, but the outcome should never be left to chance.  All recommendations made will be implemented for future tax years to prevent repetitive audits for the same question.  Compliance with tax laws is important since the cost of noncompliance can bring death to a business.

 

 

 

Alliant Group: Reasoning Behind R&D Tax Credits

Initially, the IRS tax code was designed to collect a fair amount of money from the top earners in the United States.  Decades of new laws have caused a transformation to make the tax code a way to guide activities in various sectors of the economy.  Alliant Group works with clients to embrace the activities that will yield the highest return on the investment in research and development.  Business owners would like to see a reduction in the corporate tax rate, but Congress wrote R&D tax credit laws to encourage annual investments in R&D.  This extra step reminds companies that market leaders must fight for position continually.

Any other approach to tax laws would allow businesses to decide where to invest revenue throughout the calendar year.  Alliant Group knows that R&D efforts would continue, but the pace would be slower and less competitive.  Embracing activities that increase the percentage of qualifying work allows companies to optimize the R&D tax credit programs.  Companies in 30 industries can participate.  In the early years, only large companies were eligible for these lucrative tax credits.  Congress has realized that smaller firms can break through growth barriers because of R&D tax credits.

Business leaders should ask for a tax credit study to determine what current activities qualify.  Alliant Group wants all decision makers to realize that the effort required to create the reports is invaluable.  Existing activities can be modified to comply with the requirements of the R&D tax credit program.  New projects can be defined with qualifying roles and tasks that will reduce the project costs.  Appropriate planning can open doors for new contracts and projects that were once out of the company’s reach.  Tax credits will be renewed as long as Congress sees companies embracing the programs.  Unfortunately, too many decision makers are allowing millions of unspent tax credit dollars to remain on the table every year.

Alliant Group: Federal R&D Tax Credits

In the 1980s, Congress developed specific R&D tax credit programs that were designed to encourage large firms to invest in research and development.  The nation was in a deep recession that had to end.  Tax credits were thought to provide incentives to improve products and increase sales.  History proved that this method led to more jobs, higher tax revenue, and a healthy economy.  Thirty years later, Congress continues to renew and expand the R&D tax credits to include small and midsize businesses in many industries.  Decreasing the tax burden on businesses creates jobs, encourages innovation, and supports economic growth.

People in lab coats are not the only employees who perform qualifying work that is considered research and development.  Alliant Group works with businesses in every sector to identify activities that qualify for this credit under the IRS R&D tax guidelines. Alliant Group’s industry experts have developed a list of activities and processes and work with clients to maximize the percentage of work that qualifies for R&D tax credits.  Continuous improvement results in better products, processes, and services that give companies a competitive edge in the marketplace.

Without R&D tax credits, companies would continue to innovate but at a slower pace.  Costs associated with materials and labor would drain the cash reserves and constrain cash flow.  R&D tax credits cover expenses associated with attempts that might result in advances.  At times, an experiment will not have the predicted outcome, but time and materials have been invested, and those costs can be recovered through R&D tax credits.  Companies are reminded that the money invested each year in R&D does not have to result in constant progress.  Tax credits are designed to relieve the costs of R&D throughout the year.

Alliant Group: R&D Tax Credits Grow Businesses

Competitive businesses conduct various activities that fall into the broad category of research and development (R&D). Alliant Group encourages all small and midsize businesses to request a tax credit study early this year to procure these advantageous tax benefits. Optimizing the number of qualifying roles and tasks can improve cash flow in this struggling economy and reducing the tax burden allows companies to invest in growth which can expand a company’s equipment and personnel. The R&D tax credit programs are designed to encourage sustained innovation with American businesses no matter the size of each individual firm.

Businesses realize a significant number of benefits when participating in R&D tax credit programs. Examples of these benefits include:

 

• A source of cash that is immediately accessible since the tax burden is reduced.

 

• Tax liabilities at the state and federal levels will drop significantly in the current, and future, tax year.

 

• The dollar-for-dollar tax credit allows the business to pay lower taxes and not wait for a refund.

 

• R&D expenses are deducted from the gross income, which further lowers the tax obligation.

 

• Congress has allocated nearly $9 billion for R&D tax credits every year though millions of dollars remain unclaimed each year.

 

• More than 80 percent of the funds claimed will go to the largest companies in the United States. There are no size requirements on the R&D tax credit program.

 

• Companies in virtually every industry will qualify for the R&D tax credit program.

 

• All open tax years are eligible for R&D tax credits when appropriate documentation is provided.

 

• R&D tax credits can carry forward for 20 years.

 

• Additional R&D tax credits are added each year as technological leaps become standard practices that require improvements.

 

• States and cities are embracing the use of R&D tax credits to encourage companies to move into new communities.

Alliant Group has teams of industry experts who work with clients to maximize the R&D tax credits each year while providing careful guidance to ensure that the documentation will stand up against an IRS audit.