The IRS Audit Blog

Archive for October, 2007

Start now to get ready for filing income tax

Dear Action Line: What information and records should I collect now before going to do my taxes? I always show up at the tax filer’s office under-prepared. — R.T., Tulsa.

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Question: Will doing your taxes yourself cause a red flag if you previously used a tax preparer & your income increased?

I have used the same person at H&R block to do all my tax stuff. This year I sold a lot of stock (ESPP & own) which increased my income into the next & most audited tax bracket. When I handed the paper work to H&R block, the eyes glazed with confusion, didn’t do any cost basis calculations, and said I owed $10 grand more than the number I got from turbo tax. I ended up filing an extension, paying what I thought I owed and am now in a pickle.

Will the IRS throw a red flag up if I do my own taxes on turbo tax when my income increases this year and not use a tax preparer, and next year when my income reduces to something more realistic use a tax preparer again?

Answer: You obviously ran into an incompetent boob at Block. Sadly they have far too many of those clowns on the payroll.

The only time a tax preparer’s information on your return increases your odds of an audit is if the tax preparer has a record of fraudulent or improper return preparation. Other than that, the odds of an audit are solely based upon the numbers you reported on your return.

If you used Turbo Tax and followed the instructions carefully and used valid cost basis information then your return should pass muster with the IRS. If you are challenged by the IRS, as long as you have your proof of your cost basis available, an audit will be a simple paper exercise and won’t result in any extra tax. The auditor will typically take a random sample of the reported transactions and ask for proof of your cost basis. If that passes muster, they’ll generally pass on the rest of the transactions on the odds than an error is unlikely and the chance to levy additional tax is low.

Now that you’ve handled it on your own — probably successfully — don’t waste your money on Block or the other tax prep mills. Using modern tax software, most taxpayers can handle it themselves at lower cost and often do a BETTER job, as you are now learning.

Avoid these common tax errors and audit triggers

No business wants to have its tax returns examined any more closely than necessary. Below are some of the most common errors businesses make when filing their taxes. Be sure you steer clear of these potential red flags.

NC man pleads to tax evasion, admits kickbacks

Associated Press – February 19, 2010 8:05 AM ET CHARLESTON, W.Va. (AP) – A former employee of a West Virginia whitewater rafting company has pleaded guilty to tax evasion that included money…

Question: how difficult is law school, I’m wanting to be a tax/estate planning attorney?

i want to be an attorney that handles tax ad estat planning. how long do I have to go to school, what are major challenges, income, job outlook, work-life balance. I am 24 and have my degree in business adm…advice is needed

Answer: I just graduated from law school in May. I’m still looking for a job, but part of my problem is that my grades in law school weren’t terrific. On top of that, I went back to school when I was 29, now I’m 33, so I suspect my age works against me.

Law school is 3 years. Before you get in, you’ll have to take the LSAT (law school entrance exam). Even if you are only thinking about law school, you should take it now because the results take a while to come back. Most schools have an application deadline around March or April, but the sooner you get your applications in, the better chance you have of being admitted and/or getting a scholarship.

You can try to go part-time, but it is hard to get into a good school that way…most of the better schools don’t even have part-time programs. Reputation of your school, as well as grades, is critical. Don’t bother spending the time and money if you don’t have the time/patience to go full-tilt. Frankly, if you can only get into a bottom-tier school, I wouldn’t bother. You’ll be able to get a job as a lawyer, but you won’t make any more than 40K per year, and on top of that will probably have a lot of student loans. Same goes if you think you can only get mediocre grades. Of course, if you aren’t worried about money so much as job satisfaction, that changes the equation. I will likely not make too much more than I made before law school, when I was a biologist. The thing is, I hated working in a lab, so it’s a good trade for me.

Law school is hard. During school, I would plan on either not working at all, or working no more than 10 hours per week, especially during your first year. The first year is critical because it contains foundation courses, and you will need good grades to get your first internship, which is critical to your later success. You will work like an animal your first year. If your first year grades are horrible, I would consider dropping out. That sounds harsh, but they sort of determine the course of your career.

Job outlook depends upon your grades and the school you go to. Legal jobs can be pretty recession-proof, this will be particularly true for tax and estate planning. Since you have a degree in business admin, you might have an easier time, particularly if you have a bit of experience and/or went to a good school for your undergrad. Try looking up some of your local firms, particularly ones that have tax practices. Look at the bios of their associates, most firms list them on their websites. Check out their backgrounds, compare them to yours. If your credentials are about on par, then go to their recruiting page and see if you can guess what the average salaries are.

OK, so this was sort of a brain dump, but my best advice to you is, if you want to do it, absolutely go for it. Just go in with your eyes very wide open. Know what debt you will be in, and have a pretty decent idea of what the local job market is. Don’t rely on your prospective law school to tell you what your salary prospects are. They fudge the numbers to make their school look better. If you can, have a sit-down with a local attorney.

Good luck.

Supervisor unbowed as he departs

WHEATFIELD — Fourteen years as town supervisor has taken its toll on Timothy E. Demler.

Haleigh Cummings Stepmom Speaks-Early Show Misty Cummings (Croslin)