Imagine that the IRS has called you in to have a sit down interview with them. They want to get the nitty-gritty details of your tax situation and how it corresponds to the work that they do. That may sound like no problem to you, but beware of what you might be walking into. It is possible that they are trying to get information that could entrap you later on if you were to face civil or even criminal penalties for not properly paying your taxes. It might sound outlandish, but it does happen.
This is exactly why so many people ask to have an attorney present when they are going through this process. It is not simply to drag out this questioning with the IRS longer than it has to go. Rather, it is about making sure that there is a clear record of everything that was said. It is about protecting oneself from a possible onslaught by the IRS in the long run.
Making a recording of an interview with the IRS is perfectly legal. In order to do so though, one needs to make that request in writing to the IRS at least ten days in advance of their scheduled interview. That is the only way that permission to do so can be granted.
If you are to record your interview, you must bring your own audio equipment along. The IRS is allowed to do the same but would also have to provide you with ten days advanced notice that this is what they planned to do. If the IRS decides to record your interview, they will bring their own audio equipment as well.
There is a big debate about the idea of recording an interview with an auditor. While some say that this is the only way to guarantee that the record is written down in stone, others say that it sends the wrong message to the auditor who may get the impression that you are trying to cover something up. You want a healthy relationship with the auditor, and it should be a relationship in which the two of you are able to trust one another. If that isn’t happening, then there are already problems going forward.
It might be best to lay off the request to record the interview for the time being. You do not want the IRS to get the notion that you are attempting to conceal something from them. They will find out if you are trying to hide something anyway. It is best to avoid even the suspicion that this is what you might be doing.
Just because you have the legal right to do something does not mean that this is the route that you ought to take. There are other choices that can be made in these situations. Perhaps you should take a look into those and see if just going to the interview without a recording might be the better option for your circumstances. You never know how things might turn out.
How many years of returns are at risk during an audit?
A crisp letter with an official seal appears in your mailbox and dread spreads across your face. It bears the logo of the Internal Revenue Service (IRS). Those letters are rarely good news. In fact, you may be like many other Americans this year who have received such a letter. That letter is letting you know that the IRS is putting you under audit.
Each year the IRS reviews as many of the tax returns as they possibly can from every American who submits them. They are mostly on the lookout for significant errors in reported income versus what a person actually made. Additionally, they tend to be more interested in higher incomes as the errors on those incomes would obviously be largely by nature. However, the IRS also does pull a random sample each year from the public at large to examine and figure out if there are any mistakes among those returns as well. Their goal here is to avoid allowing anything to slip through the cracks so to speak.
When you are the unfortunate one whom the IRS has selected for an audit, you have to start worrying about things such as how many years back the IRS is going to go in their audit. Perhaps you did not make any errors in your reporting this year, but what about in years prior? Just how far back are they allowed to go anyway?
The good news is that the IRS does make every legitimate effort to audit tax returns as quickly as possible. They want to eliminate this work off of their books just as much as you want them off of your back. Therefore, they do try to find the mistakes quickly. However, they can go back up to three years in most standard cases. If there are significant errors in reporting, they may drag this out as far back as six years into the past.
Both of those are a potentially long time for a taxpayer, but at least you know that they are not going all the way back through the entire history of your tax records just looking for something to nail you with. They really are just trying to find some of the most recent errors or omissions.
While it is nice to know that the IRS does not typically go back more than three years, it is also important that you keep all of your tax records in your possession in the event that they have questions for you about any particular year. It is a good thing to have something to reference when these questions start to come in from this government agency. You can spare yourself a lot of grief that way.
Take a look at the IRS website if you are fearful about how far back they are going to go. The truth is that the website is somewhat comforting in the fact that it reaffirms the notion that they will not often go back more than three years.
Common reasons for the IRS to conduct a tax audit
Much to many taxpayer’s surprise, all tax returns submitted to the Internal Revenue Service undergo a computerized statistical analysis to determine if an audit will be necessary. Known as Discriminate Function, the analysis looks at the likelihood of a return having an under-reported income, over-reported deductions, and various other factors. Of all the tax returns audited each year, 75 percent of them come about due to receiving a poor DIF score. As for the other 25 percent, they are targeted based on information received by the IRS from outside sources, such as public records or tips. Whatever the case may be, an audit is the last thing any taxpayer wants to experience. To learn more about this, here are some common reasons why the IRS is likely to conduct a tax audit.
If you have been audited in the past, chances are it will happen again at some point. This is especially true if the previous audit resulted in a tax deficiency, meaning you wound up owing money to the IRS.
Disproportionate Deductions and Income
If you chose to itemize deductions on your tax return, you may be more likely to experience an audit. For example, if you have itemized deductions on your return that are disproportionate to your income, that is usually a red flag to IRS personnel.
While there is certainly nothing wrong with claiming charitable donations on your tax return, just be sure they are as accurate as possible. In many cases where an audit occurs, a person has claimed large charitable donations that are not reasonable based on their reported income.
Offshore Bank Accounts
If your tax return shows you did a large amount of business with offshore banks, businesses, or investment firms, your chances of being audited soar. Due to the many complex and sometimes illegal activities associated with offshore finances, the IRS takes a close look at any taxpayer using offshore credit cards, bank accounts, or investments.
If you are divorced, make sure you accurately report any alimony being paid or received. In these situations, the IRS often matches up the alimony deducted by one spouse with the income reported by the other spouse. If the numbers don’t match up, an audit is likely to happen.
While the above-mentioned reasons are very common ones as to why the IRS conducts audits, they often pale in comparison to those brought about by disgruntled employees, business partners, or others who want to see another person punished for cheating on their taxes. While in some cases the information given by informants turns out to be incorrect, many are in fact very accurate with their reports.
While overall the number of tax returns that are audited is still quite small, it does nevertheless happen to many people who never expect it will happen to them. Because of this, while it may be tempting to cheat here and there, always try to be as accurate as possible on your tax return.
How to avoid negative consequences from an IRS interview?
There are certainly some negative consequences that can come from an IRS interview when you are under audit and having to deal with that. You obviously want to ensure that things go as smoothly as possible for you during this time. In order to get the best results that you can, it is necessary to think about your strategy ahead of time.
When being asked questions by an IRS agent you should always try to keep your answers as short and to the point as possible. Do not expand upon your answers if you are not asked to do so. In other words, only give them the direct information that they are looking for.
A tax attorney is a good thing to have with you when you go to do the interview. Many of those attorneys are savvy enough to know that they may need to signal their clients non-verbally that they are treading into dangerous waters at some point during the interview. It happens often enough that the lawyers are well aware that they may have to advise some clients that they are speaking too much. Those clients should try to pick up the body language signs that their attorney is giving them in order to avoid making any missteps.
The auditor may ask for copies of tax returns from previous years. Attorneys say that no taxpayer should turn these over unless they are specifically instructed to by their attorney. The auditor may be just fishing for some information that he or she is not really entitled to. That also happens on a somewhat frequent basis, so it is advisable to avoid messing with this entirely and always going to your attorney for answers as to what kind of documents you should really be turning over to the auditors. It may not be that they get everything that they want from you.
Some people may feel at some point that they are not being treated fairly or with respect. Even in that tense situation, it is their responsibility to remain calm and under control. They need to have a respectable attitude about things because that is the only way in which they will be able to control any bit of this situation. Getting emotional or having an outburst of any kind is not going to help the situation in any way.
If tax fraud is mentioned at any point during the interview, your counsel will likely recommend that you plead the Fifth Amendment and remain silent on the topic. That is what area that they definitely do not want you to give up any answers about to the IRS. They would rather fight about that in court than risk you self-incriminating. You should follow the advice of your attorney on that one and just let that question be hashed out in court at some point down the line. There is no point in trying to explain your situation to an IRS agent who isn’t going to care about it anyway.
What should I do if the IRS is investigating me?
The IRS may inform you that they are investigating your tax returns at some point in your tax paying life. That is a troubling message to receive no matter what stage of life you are in. They don’t send these letters to be nice, they are just informing you of this so that you understand that you are under audit and that you have rights.
A lot of people freak out when they first get the message that the IRS is coming after them. It is understandable that some will hit the panic button when they first get this news. However, the better option is for them to contact a tax attorney who has been through this with other cases.
The IRS can investigate any taxpayer that they want. That doesn’t mean that those under investigation have to agree with everything that the IRS claims to find. They are still entitled to their rights, and among those rights is the right to defend themselves against whatever an IRS agent may say about their situation. A lot of people do not take the proper amount of time to actually put up a fight in these situations. Just realize that not battling for your rights as a taxpayer could cost you literally thousands of dollars.
An IRS audit for most people means additional penalties and fees on top of what they already owe to the IRS. However, those in extreme situations may even face some criminal payments along the way. That is something that no one ever wants to face. It is the worst nightmare of any taxpayer. To literally be locked up for failure to pay one’s taxes is one of the worst financial situations that anyone could ever be in.
All in all, it is best to remain calm during an audit and document everything. Remember that if it is not on paper then it is almost like it doesn’t exist. Always get a tax attorney as soon as possible both to give yourself some peace of mind but also to protect your rights. Additionally, try to find out as much about what the IRS is looking into in particular with your case. It might be hard for you to do much on that last count, but you have to try to defend your position as much as possible, and that does mean trying to do whatever you can to see what they have on you.
You are always going to need a lawyer in these situations no matter how you slice it. A lawyer will have had experiences that are very similar to what you are going through right now. They will know what to do in a variety of circumstances that could come up. Therefore, you might as well assume that you should go ahead and get one if you are already looking at the potential for the IRS investigating you or conducting an audit. It is better to get your mind back to the things in life that matter rather than worrying about what is happening with your audit.
What if I don’t respond to a taxing authority audit notice
The last thing you want to see in your mailbox is official mail from the Internal Revenue Service. They rarely have any good news for you. Most of the time a letter from them means that you have been audited for some reason or another. They will go out of their way to find every last dollar and cent that they can that you owe them. Thus, the letter from the IRS is definitely not an appealing one to see show up in your box.
You have options when you receive the letter. You can choose to simply ignore it and try to wish it away in your mind. The other options of course is to actually respond to it and take some steps towards getting it taken care of. Given those two options, most can see that obviously it is best to take steps towards getting it taken care of. That is truthfully the only way in which a person can manage to take care of their business.
In the event that you decide to ignore your IRS notice of an audit you might wonder what will happen. The answer is that the best case scenario that you could hope for is that the IRS will just continue to add fees and penalties. However, the scenarios do not get any better from there. You could be looking at wage garnishments and levies if you are not careful with this. The IRS does not want to be ignored in their quest to get the money that they are rightfully owed from you in the form of backed taxes. You can ignore them if you want, but that is only going to work against you in the long run.
There are worst case scenarios that are even worse than having wage garnishments or levies against you. There is even a possibility of having criminal charges brought against you if you ignore your audit notice for too long and also have backed taxes that you legitimately owe. That is not entirely out of the question depending on what your circumstances are. Do you really want to risk the possibility of going to jail just because you wanted to ignore the notices that the IRS had been posting about your need to pay them? That is not a scenario that most people would find very appealing at all.
When you receive your IRS letter you might be somewhat scared. That is an understandable reaction to have. However, you need to act with rational thought and always with your own best interests in mind. Then and only then will you be able to navigate your way through what could otherwise be a minefield of legal and financial issues.
Your best friend in these situations is definitely a tax attorney who has seen it all before. He or she can hold your hand through these difficult times and help you get to the best possible solution that you can find with the IRS. That is why you need one right away.
Your rights during an IRS tax audit
You retain some rights during an IRS audit that you may not even realize that you had. Among those rights are the right to council, the right to professional treatment, the right to question why certain information is being collected, etc. These are all highly important rights that you should know about. We are going to break them down now and see how each one impacts you during the audit process.
Your Right To Professional Treatment
The very first thing that you should understand that you have a right to is professional treatment by all IRS agents. You deserve the opportunity to have them explain things to you with the same courtesy that you would receive from anyone tasked with explaining how something works. Although many types of debt collectors are highly aggressive in the measures that they take, you do not have to put up with that when it comes to the IRS. They are not permitted to treat you with disrespect.
You Still Have The Right To An Attorney
Just as you have the right to an attorney when dealing with criminal matters, so too do you have the right to one when you are dealing with matters related to an IRS audit. You have to understand that the IRS is just a government agency. They do have a lot of power to be sure, but you do not have to give up your rights as a citizen just because you are dealing with them. They still have to treat you with care.
You Get To Know Why They Need Certain Information
The IRS can ask for whatever documents they want, but that does not mean that you are required to turn everything over. You absolutely have the right to ask why it is that they are asking you for certain items. You might just discover that they are just fishing for information that they are not entitled to have. If that is the case, then you obviously will want to put a stop to that right away. You can always ask why they need certain information and what the consequences would be to you if you did not turn over that information to them.
You Have A Right To Privacy
You are a private citizen and you have a right to that privacy. Any matters that you take up with the IRS are to remain private. They cannot go around calling your neighbors or even your spouse and asking why it is that you have not paid your taxes. They can only speak with yourself directly on this matter. If they have an issue with that, they will need to figure out another route to get the information that they require. You are not required to just turn it over to them.
Make sure you fully understand your rights before you ever step into dealing with the IRS at any capacity. They will use your lack of knowledge of these rights against you if they get half a chance.
Risks of attending an IRS audit without a tax lawyer
If you have filed your federal tax returns on time, you usually feel pretty good. That is, until you receive notification from the IRS stating an audit will be conducted of your return. When this happens, people often panic, thinking they will automatically be put in jail, lose their home or business, and other events that could lead to personal and professional ruin. However, it doesn’t have to be that way. For those smart taxpayers who choose to utilize the services of an experienced and knowledgeable tax lawyer when attending their audit, the results can be more than satisfactory. If you are preparing for an audit, here are some risks associated with attending your hearing without a tax lawyer by your side.
Lack of Experience
While a tax lawyer will be very experienced in dealing with audit proceedings, you are not. Because of this, you are very likely to incriminate yourself during the hearing, often without even realizing you have done so. Along with this, you will look guilty, and be far more stressed out than if you have a tax lawyer who understands the complexities of these investigations.
During audit proceedings, the IRS can force the accountant who handled your tax returns to testify against you. Therefore, if you have committed fraud, your accountant will tell the IRS everything, virtually guaranteeing you will wind up in prison. However, if you work with a tax lawyer, the IRS cannot force your attorney to testify against you in a hearing. Thus, no matter what secrets or other information you have shared with your attorney, you can be sure they will not be revealed, thanks to attorney-client privilege.
When an audit occurs, the IRS usually looks back over several years of a taxpayer’s financial records and tax returns, then prepares a series of questions designed to determine just how truthful the taxpayer has been in reporting their income. Needless to say, if you choose to go it alone, you will spend hours and hours combing through your records, trying to figure out what you will need with you during the hearing. However, by using a tax lawyer who will likely already know what’s needed, your prep time will be cut substantially, giving you peace of mind along the way.
Communicating with IRS
When you receive letters from the IRS, it’s often difficult to know exactly what they mean. Because of this, you may misinterpret something that could be crucial to your audit. Therefore, it’s best to work with a tax lawyer before and during your audit, since they can interpret the information correctly and communicate directly with the IRS on your behalf.
In almost any situation where an audit will be taking place, it’s best to have a skilled tax lawyer working with you to see that your legal rights are protected every step of the way. Rather than go it alone and risk losing your case, let an experienced tax lawyer do the hard work for you.
Why hire an attorney to represent me in an IRS tax audit?
Did you know that ever year the IRS randomly selects a group of taxpayers to audit even if no flags or issues have been noticed? They do this as a way of spot checking themselves and attempting to catch an errors or omissions that may exist in the filings of these individuals. That makes sense from the agency’s point of view, but it is an extremely irritating thing to deal with as an individual taxpayer.
The first sign that you will have that you have been selected to be audited is a mailed notice. The IRS will always inform you via the U.S. Postal Service. Any other form of communication that claims to be from the IRS is a scam. When you do receive that letter, it will inform you that you are under audit. Obviously, this can be a very stressful thing to read. It is not a moment to panic though, it is a moment to act proactively.
The IRS is often fishing for information in their first few attempts to contact you. They may ask questions about your charitable giving or about exactly how it is that a certain employer pays you. It is always best to report this information accurately and truthfully as the IRS is a government agency that you do not want to get caught lying to.
Obtaining an attorney at this stage of the game may prove to be worth your while. A lot of people get very nervous during the audit process and it is easy to make mistakes. Those mistakes can prove very costly in the form of late fees and penalties for not properly paying your taxes all this time. It is not as though you set out to defraud the government, but any little mistake and they might ding you for it. Once you realize this, it is time to stick with getting a professional to assist you in moving things back into the right direction.
In the event that you used an accountant to file your taxes, contact the company that they work for right away. You can actually have your attorney handle this. The important thing here is to get the company to back up the work that they did on your behalf. They know what they did, and they can go back into your file and try to figure out where things might have gone wrong.
The IRS is going to continue on with their audit and you could be charged for backed taxes as well as the penalties that go along with that if you are not careful. They are quick to throw on a lot of extra penalties against you. That is why hiring an attorney quickly is your best course of action to avoid the steep penalties that can come with not properly filing IRS taxes right away. When you see things in this light, it become a lot more clear that hiring an attorney is actually about saving yourself some money. That is the most important thing to focus in on at this stage of the game.