IRS Audit & Representation

There are many factors the Internal Revenue Service (IRS) can contact taxpayers for audit. Most individuals or businesses start panicking or are alarmed when they see a notice of an audit. However, most of the times it's not as bad as one would think.  Depending on the individual or the business, audits can be simple or complex. A simple audit can last from a few months as compared to a complex one that can run over a year. Therefore, we can’t emphasis enough, it is essential to have a tax professional on your side who is experienced and familiar with IRS audits and its process. A tax professional such as an Enrolled Agent, Certified Public Accountant, or Attorney are the best choices. Other factors that will impact your audit are the statute of limitations, type of audit, and complexity.

IRS Audit & Representation

Before the IRS contacts a taxpayer, they have reviewed the tax return to ensure the tax return is still under the statute of limitations. The statute of limitations runs three years from the filing of the tax return or the due date, whichever is later. However, if a return was never filed the statute doesn’t start to run. This means the IRS can audit that year anytime. That is why it is essential to always file a return. There are some exceptions which we are not covering here. The earlier you reach out to your tax preparer the better they can prepare.

There are typically three types of audits. First, mail audits for more simple returns. If you have ever received a notice from the IRS it was probably for something simple where they made corrections to your income, deduction, tax credits, or withholdings. The taxpayer has the option to respond or send in supporting documents to substantiate their position. That is why it is essential to save documents until the statute has expired. Second, are desk audits which are for little more complex cases. The taxpayer or their representative meet with the IRS agent at one of their offices. Before meeting the IRS agent, the agent mails an information document request (IDR) to the taxpayer or their representative outlining all the documents that need to be brought to the meeting. Third, are field audits typically focused on small and larger businesses where the IRS agent meets the taxpayer or their representative at their business location. These audits can be very complex in nature and take the longest. During the field audits the IRS agent usually covers multiple issues, years and conducts a thorough review of taxpayer’s records and return. Experienced tax professionals have typically led and negotiated on multiple audits over the years, not only with the IRS but also with state tax authorities. This gives them the experience to navigate through the audit over a taxpayer.

The complexity of the audit really determines the length of the audit and the assessment. The longer an audit takes the more likely hood there is for the IRS to discover additional issues. After determining the issues, the IRS proposes adjustments, meaning these are the issues they propose should be changed. The taxpayer or tax professional can either agree or disagree with the adjustments. There have been instances where the IRS incorrectly proposed an adjustment, after further review, analysis and discussion with the tax professional the IRS reversed the adjustment based on clarification of the situation and the Internal Revenue Code (IRC). In simple instances, the IRS immediately reverses the adjustment back and if the parties disagree on the adjustment the taxpayer has the right to go to tax court or appeals court which would extend the audit. After the adjustments have been determined, next, the IRS adds penalties and interest to the adjustments. This can double taxpayer assessment. In certain instances, the IRS can also pursue fraud penalties and criminal prosecution after handing the case over to the IRS Criminal Investigation. However, this is very rare, the IRS approximates about 3,000 criminal prosecutions per year out of the roughly 155 million taxpayers.

IRS audits are very common. The best advice for a taxpayer to prepare for an audit is by engaging an experienced tax professional as early as possible and maintaining supporting documents. This will ensure the IRS agent's questions are promptly addressed to close the audit as early as possible. Some of the factors that will impact the audit are the statute of limitations, type of audit, and complexity.

At Edison Tax Group we have experienced and licensed tax professionals who represent taxpayers in front of the IRS, are well versed with the internal revenue code (IRC) and are very familiar with IRS audit, process, and representation. We provide excellent tax and IRS representation services in NJ and across all other states. Please reach out to us for an appointment to consult on your case."

Things to Consider Before Hiring a Tax Professional

During tax season every year taxpayers look for prudent and qualified tax preparers to get their taxes prepared. There are many tax preparers out there and choosing the qualified and prudent preparer can be challenging. We have compiled 11 criteria based on internal revenue service (IRS) tips, which will narrow down the right preparer for your next time:

 Preparer’s Qualifications 

Most taxpayers aren't aware they are able to look up their preparer's qualifications on the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This is a great tool that lets the taxpayers verify tax return preparers specific qualifications for any tax preparer located within the United States by simply entering the zip code and the last name.

Verify Background

Taxpayers can start by looking at tax preparers online reviews and/ or Better Business Bureau (BBB). Most tax preparers note on their website if they are a member of the BBB. If so, the taxpayer can check the tax preparer's ratings, disciplinary actions against them, and the license status for credentialed preparers. 

Licensing

 This is a very critical criterion. Taxpayers should ensure their tax preparer has at least one of these licenses. This ensures they are held to the highest standards.  The following licenses can be verified. First, for CPAs, the State Board of Accountancy. Second, for attorneys, the State Bar Association. Third, for Enrolled Agents the verify enrolled agent status page on IRS.gov or the directory as stated above in the preparer’s qualification section.  

Fees

The internal revenue service (IRS) does not allow tax preparer to charge contingent fees, which essentially basing the fees on a percentage of the refund rather than a flat fee. The IRS takes this very seriously. Any tax preparer who disregards this rule will be fined or disbarred from filing tax returns by the IRS.

E-File 

In this day and age it is crucial tax preparers are offering e-filing to taxpayers. This ensures their return is filed quickly and the refund is typically processed and deposited much faster by selecting the direct deposit option as compared to paper filing the return. In some cases, the IRS and some states might penalize the taxpayer for not e-filing the return. This adds an additional burden on them to process the returns manually. 

Available Year Around

 The taxpayer should if the tax preparer will be around after the tax season is over? If not, taxpayers should avoid those tax preparers. Tax preparers who will welcome you year-round will usually provide support in case the IRS sends a notice or if a copy of their return is needed, they can assist. Stay away from seasonal tax preparers who disappear after April 15.  

 Records and Receipts

 There are always questions on income, expenses, and deductions. Prudent tax preparers will always ask the taxpayers to support their position by requesting to see a receipts or statements to keep a copy for support. This is followed up by asking specific questions to make sure all the income and deductions have been captured.

Signing a Tax Return

 Taxpayers might run into a situation where they might not be around until after April 15 (Individuals). In that or any other case never sign a blank return for your tax preparer. This is just like handing someone a signed blank check. Avoid tax preparers who ask this from you. The two options here are signing the tax return electronically or filing an extension until October 15.

Review

Just like with any other legal document always review and ask questions on your tax return, if unclear. Filing an accurate return is not only the responsibility of tax preparers but also taxpayers. After reviewing and before signing verify the refund amount and direct deposit information. The tax preparer cannot negotiate or deposit a refund check on your behalf. If the taxpayer doesn’t have a bank account, then a paper check can be requested. This will usually take longer to process by the IRS. After reviewing the information including the banking information on the return asks the tax preparer for a signed copy of the completed tax return for your records, if not already provided.

Signature and PTIN: 

A prudent paid tax preparer should be singing and noting their Preparer Tax Identification Number (PTIN) on the tax return. The PTIN serves as tax preparers Social Security number on the return. It is specific to each tax preparer.

Report Tax Preparers:

 Every year the Office of Professional Responsibility (OPR) barres CPA, Tax Attorney's and/or EA's from practicing for misconduct, fraud, and/or being abusive. Although, the majority of tax preparers are honest and respect the profession. However, if the taxpayer encounters once who they believe was dishonest or abusive they can certainly file a complaint with the IRS by using Form 14157, Complaint: Or if a taxpayer suspects a tax preparer amended or changed their return without their consent, they should file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. 

All the criteria listed above are equally important in choosing the right tax preparer. Now you can distinguish a good tax preparer from a bad one next time you chose one. If you are planning for taxation, Edison Tax Group is the right choice, they are providing excellent tax service in Edison NJ.