The IRS Audit Blog

Posts Tagged ‘audit’

Fixing Flores: Assuring Adequate Penalties For Identity Theft And Fraud

This Backgrounder proposes statutory language fixes to federal identity theft and aggravated felony language in 18 U.S.C. §§ 1028 and 1028A to reverse the practical implications of the May 2009 Supreme Court ruling in Flores-Figueroa v. United States.

Screw Your Taxes! Screw the I.R.S.!

More Than 10 Ways to Get FOSS Past the Boss

Jan. 4 is here at last, and not a moment too soon! Good riddance to all the eggnog, the mingling and the jolliness. It’s time to settle back down to work once again, and for that, what better companion than FOSS? There’s certainly no better way to get things done — the only catch, of course, is that not everyone realizes that.

JCCC Board of Trustees Meeting, 2-19-09

Question: Are their true fans out there (see details)?

‘Blasting and bubbling, I fell on his neck with a scream,
Wave upon wave of demented avengers,
March cheerfully out of obscurity into the dream…’

Title of song and name of artist?

PS: Use Google, and Yamster commandos hidden in your local postboxes will turn your income tax returns into bedding material, then tip off the IRS that you should be audited.
‘Sheep Floyd???’ Yes, the legendary blues herder : )

Answer: Sheep: Pink Floyd

Don’t Get Scammed on Your Tax Refund

Itching to get your due from Uncle Sam? There are plenty of folks — legit and otherwise — who will happily promise to help you get a faster or bigger refund. My advice? Don’t fall for any of the come-ons, no matter how tempting they sound.

IRS Audit Myths Debunked

Question: Will claiming a home office that is 38% of my rented home increase audit risk?

My home office is 38% of my square footage of my entire home, and used exclusively for my home business. Will that size raise some flags though? Most other examples of home offices I see are only 25%.

Answer: Claiming a Deduction for Your Home Office

http://www.irs.gov/newsroom/article/0,,id=108138,00.html

Home Office Deduction Reminders

http://www.irs.gov/newsroom/article/0,,id=163079,00.html

Many people whose small businesses qualify them for a home office deduction are afraid to take it because they’ve heard it will trigger an audit. Will taking the home office deduction trigger an audit? The answer is generally “no.” Changes in the rules in the late 1990s made it easier for people who work out of their homes to qualify for these write-offs. So if you qualify, by all means, take it.

The biggest roadblock to qualifying for these deductions is that you must use a portion of your home exclusively and regularly for your business. The law is clear and the IRS is serious about the exclusive-use requirement. Say you set aside a room in your home for a full-time business and you work in it at least ten hours a day, seven days a week. Let your children use the office to do their homework, though, and you violate the exclusive-use requirement and forfeit the chance for home-office deductions.

The rule doesn’t mean you’re forbidden to make a personal phone call from the office, or that you have to rush outside whenever a family member needs a moment of your time. Although individual IRS auditors may be more or less strict on this point, some advisors say you meet the spirit of the exclusive-use test as long as personal activities invade the home office no more than they would be permitted at an office building.

Your home office business deductions are based on the percentage of your home used for the business. The most exact way to figure this proportion is to measure the square footage devoted to your home office and find what percentage it is of the total area of your home. If the office measures 150 square feet, for example, and the total area of the house is 1,200 square feet, your business percentage would be 12.5% (150 ÷ 1,200).

An easier way is acceptable if the rooms in your home are all about the same size. In that case, you can figure the business percentage by dividing the number of rooms used in your business by the total number of rooms in the house.

Direct expenses
Money spent to repair or maintain the business space is deductible. If you paint the room that is your home office, for example, the entire cost can be deducted.

Indirect expenses
These will probably be your most fruitful home office deductions. Because part of your home qualifies as business property, part of the costs of running it can be converted from nondeductible personal expenses to business write-offs. If your office space takes up 20% of the house, you can deduct 20% of your utility bills, home insurance bills and overall home repairs and maintenance costs. Although no part of the cost of the first telephone line in your home can be deducted, the full cost of a special line for your business and other direct expenses—such as the cost of long-distance calls—can be written off.

Interest and property taxes
Mortgage interest and property taxes are deductible expenses whether you qualify for home office deductions. But with a home office you convert part of those expenses from personal itemized deductions to business write-offs. Because business expenses reduce self-employment income, they can also trim what you owe in Social Security taxes.

Limit on write-offs
The law puts a cap on how much you can deduct for the business use of the home. Basically, your home office deductions can’t exceed your home-based business income. In other words, home office expenses can’t create a tax loss to shelter other income.

Cop charged in armed robbery

A Minneapolis police officer has been charged in federal court in the armed robbery of an Apple Valley bank, and police say he is likely the masked gunman in at least four other robberies across the southern suburbs.

What are the red flags that will trigger an audit?

The drop dead date to apply to the IRS Voluntary Disclosure Program was October 15th, however U.S. taxpayers still can file a voluntary disclosure under the IRS normal procedures.

In 2009, the IRS and U.S. Department of Justice commenced its highly publicized investigation into Swiss bank UBS AG and U.S. accountholders who failed to inform them of these assets. However, the investigation did not end with UBS. The IRS has made it very public that offshore tax evasion remains a top enforcement priority. The Department of Justice has gone after taxpayers regardless of the amount even taxpayers with assets of $20,000 or less in offshore accounts.

U.S. taxpayers with offshore assets and accounts are required to disclose these interests to the U.S. government on their Form 1040, U.S. Individual Tax Returns, and file a corresponding Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). If IRS agents find out that a taxpayer has not disclosed an interest in an offshore account or income accruing on such accounts during the course of an audit, the IRS may impose harsh penalties including the greater of $100,000 or 50% of the offshore account balance for willful failure to file an FBAR for each account. These penalties, compounded with interest and fraud penalties, can essentially wipe out the taxpayers foreign assets. To make matters worse, taxpayers could be exposed to criminal prosecution and jail time for tax evasion.

In March 2009, to prod taxpayers to come forward and disclose previously undisclosed offshore accounts in exchange for minimal penalties and the promise not to refer the case for criminal prosecution, the IRS announced the creation of the IRS Voluntary Disclosure Program. As a result of pressure on UBS and other offshore institutions, thousands of U.S. taxpayers with previously undisclosed offshore accounts took advantage of the Voluntary Disclosure Program and joined before the October 15, 2009 deadline.

Despite the fact that it is too late to enter the IRS Voluntary Disclosure Program, the option to file a voluntary disclosure under the IRS normal procedures is still available. There are a plenty of advantages to filing a voluntary disclosure as it is far better to disclose to the IRS than to have the IRS discover you. As is with the Voluntary Disclosure Program, a traditional voluntary disclosure can provide taxpayers with previously undisclosed foreign accounts with a way out possibly avoiding the most severe of civil fines and criminal prosecution.

In addition, those U.S. taxpayers with undisclosed offshore bank accounts should be made very aware that the voluntary disclosure process is a comprehensive and delicate one as with all dealings involving the IRS. Extreme care must be taken in deciding on whether to file a voluntary disclosure or not. U.S. taxpayers are highly encouraged to get in touch with a tax attorney experienced in resolving disputes with the IRS as soon as possible.

For example, if a taxpayer has already been investigated and contacted by the IRS, it may be too late to file a disclosure. Therefore, time definitely plays a significant factor as the IRS continues its pursuit of undisclosed offshore account holders. The window of opportunity is closing on those who do not come forward and file to take advantage of possible reduced penalties and potential prison time. Again,it is advised that U.S. Taxpayers with undisclosed offshore accounts seek the advice of and direction of legal counsel on the matter.

If you’re audited, let the pros handle it

By Edward J. Loughrey The representative must have a Form 2848, Power of Attorney (POA) document, signed by the client that he/she will submit to the auditor. This will enable him/her to discuss all matters pertaining to the tax audit. This POA is limited to only to the tax issues at hand.

Ultimate Tax Deduction Solution to our Exploding Deficit