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IRS Income Tax Audit
questions@you-file.com
The Wall Street Journal recently reported that the IRS will once again be increasing random income tax audits in the approaching months. The random income tax audits are expected to begin in the fall of 2007. Taxpayers who receive an IRS Notice of Audit letter should not go to the IRS income tax audit without proper IRS representation. The IRS approaches income tax audits as a revenue generator for the United States Treasury, so taxpayers who decide to ignore the audit warning not to attend the audit without IRS representation may end up owing the IRS a lot of money after the income tax audit.
Many taxpayers fall into the misconception that because they are honest and haven’t done anything wrong or improper on their tax return, they can go into an IRS income tax audit without IRS representation and win the IRS audit because they haven’t done anything wrong. Unfortunately, those honest taxpayers often lose their IRS income tax audit battle much of the time because the IRS audit process favors the IRS and not the taxpayer. An IRS audit isn’t about the taxpayer being honest or right. An IRS audit is about the IRS collecting more tax money, usually from honest taxpayers.
In a recent consultation that I had with a taxpayer who was audited by the IRS, it was determined that the IRS was disallowing $8,000 in legitimate business expenses on his tax return. The taxpayer lived in the Midwest and worked as an independent contractor in California. Therefore, he frequently traveled from the Midwest to the west cost for business. In doing so, the taxpayer had mounting business travel expenses including hotels, auto expenses and meals. He included these legitimate business expenses on his tax return and was subsequently audited by the IRS. Because he was an honest taxpayer and the business expenses that he had accumulated for this business travel were real, he went to the IRS income tax audit with proof of the expenses knowing that he would beat the IRS audit. He lost.
Why did he lose the IRS income tax audit despite having all of his business expense receipts at the IRS audit to back up the claims on his tax return? He lost because the IRS Auditor did not like the way he kept his records. The taxpayer kept his receipts in a shoebox. The IRS Auditor didn’t want to go through the receipts because they were not organized so the IRS Auditor disallowed the receipts and it resulted in a large tax bill for the taxpayer on that one item alone. The taxpayer retained a qualified Associate of mine to represent him to appeal the IRS audit decision and was ultimately allowed to keep the previously disallowed business expenses. In this case, as with all IRS income tax audit cases, it wasn’t honesty that made the difference. It was having a qualified IRS Representative for the IRS audit.
It is quite common for the IRS to disallow business expenses on a taxpayer’s tax return. I often tell taxpayers who I have consulted about IRS audit matters, that an IRS income audit is not an audit by your peers. It is an audit by an IRS Auditor. Therefore, a taxpayer can not trust the outcome of the audit to the IRS Auditor because the best interest of the IRS is not in the best interest of the taxpayer. For a free confidential consultation of your IRS audit issue, please email questions@you-file.com
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