The IRS Audit Blog

Posts Tagged ‘science’

Question: if one is being audited by the state, does the state also notify the irs?

the lady who does my parents’ taxes is being criminally investigated for fraud. because of this, the state is auditing their taxes, along with all her other clients. because of the nature of this investigation, will the state eventually notify the irs, leaving them (my parents and her other clients) open to be audited federally?

Answer: State and Federal authorities frequently exchange notes so they should plan on it. Most states base the state tax liability on the Federal return as a starting point so any changes will have to be reported to the IRS as well.

Karzai’s brother says he will amend US tax returns

The eldest brother of Afghan President Hamid Karzai said he is not aware of a criminal investigation into his activities, an inquiry he claims is more about political differences with the U.S. than wrongdoing on his part.

MSNBC Investigation – Rachel Maddow Tax Shelter Crackdown

Question: has anyone used a Purchase Money Security Interest from the IRS?

I never filed a past tax return and the IRS issued a federal lien against me for the amount the said I owed (20K). I recently applied for a mortgage and this lien came up and is preventing me from closing. I immediately filed the return which was for 1999 and paid the correct amount owed (3677). The process of having the lien removed takes between “6-8 weeks” according to the irs rep I have spoken to. I call every week for an update and amazingly they tell me “6-8 weeks” every time I call.

The problem is that my mortgage commitment expires in 2 weeks. If I cannot have this lien lifted and go to closing I will lose the house. Has anyone had this occur and found a way to close?

The IRS publication 785 talks the lender being able to file for a Purchase Money Security Interest that allows them to have priority over the IRS in regards to the mortgage.

Any feedback/help on this is greatly appreciated.

DO NOT CONTACT ME WITH FINANCING OFFERS.

Answer: Talk to a lawyer. There’s probably other routes to go to get this fixed quicker, or at least prevent your mortgage from falling through.

The IRS doesn’t care about you, and odds are neither does the bank. You need someone with power to be your voice, and that’s a lawyer.

Other than that, take all your paperwork to the bank, and show them that the lien is being taken care of and they may believe you.

Former IRS Agent Joe Banister and Ron Paul On CNBC

Question: tax evasion? possibly fraud?

ok back in 2006 i started a job with a tile company, they paid me under the table in personal checks and all were deposited into my personal checking account….now he never gave me any 10-99’s and told me that i didn’t have to claim any income from him. and if i was asked about it that i was to tell them i sold him household stuff from my house and that’s where the money came from…well it went on for 2 yrs and i had some trouble getting loans because they wanted to see a pay stub, well i switched jobs, now the old boss is being audited and called me and told me not to talk to the irs…am i possibly in trouble for not filing those taxes and if so, would it be to my benefit to tell them everything about the business he’s been running and avoiding taxes?
basically i want to make this right and get it over as quickly as possible, what are the reprocussions in doing this?

Answer: First off, don’t listen to Sassy – she’s full of horse dip. The IRS is not going to throw you in jail for not reporting all your income. They ain’t that stupid. They know you’re not going to be able to pay them ANYTHING if you’re sitting in a jail cell somewhere.

Having said that you are going to owe some taxes. Deal with it. I would strongly advise you to seek the services of a professional tax preparer. In your case I would seek out an Enrolled Agent. That is a tax professional that is “licensed” to represent you before the IRS. Have them prepare the tax returns for you and get them filed – don’t worry about paying the tax at this time.

The IRS takes FAILURE TO FILE a lot more seriously than inability to pay. Don’t put it off. File the returns NOW before the IRS approaches you OR they file a return for you (which will NOT be in your favor).

Many tax professionals belong to the National Association of Tax Professionals [NATP]. Click on the first link to go to their zip-code searchable website. Enter your zip and a radius you want to search within and it will return a listing of tax pro’s in your area. Call ‘em and find one that is an Enrolled Agent (or a CPA if an EA isn’t available – however they usually charge more than an EA).

When you find out how much you owe, then submit a Form 9465 – Installment Agreement Request [click on the second link to pull up a copy] to ask for a payment plan. THEN when the IRS asks you about your income, then you can offer your testimony and be “covered” since they asked you about your employer.

G’Luck…

Mike Womack, Sr. Partner
Zero Degrees Tax LLP
Moore, OK
Lawton, OK

IRS To Regulate Tax Preparers

But new standards won’t help taxpayers this filing season.

Tackle IRS Audit

Question: Question about poker winnings?

Hi, I just recently turned 21 yrs old, and I have been playing Texas hold’em since i have been around 16 or so. I have quite a bit of experience, and I am looking to start playing more often. I went to a casino nearby the day after my 21st birthday and won minimal (like 30 dollars or so), and just out of curiosity, around 2 days ago I started playing online poker. I only bought in for around 25 dollars, but I got up to around 180 before falling back to around 115$. I was just wondering if this is major for not filing taxes on, and what I need to start doing for future play? Also, I was wondering what one must do before getting audited by the IRS? Any information is welcome because I’m new to the whole gambling/paying taxes on it thing. Thanks in advance for your input.

Answer: As a general rule, you don’t have to worry about gambling winnings until you hit $10k in the US. All gambling winnings over 10k are reported to the IRS, and if you deposit a check over 10k, the bank also reports that to the IRS.

Once you are over that threshold, and winnings are seriously large, you should start documenting your gambling more carefully. At this stage, you should consult an accountant.

Don’t be fooled by tax code myths

The U.S. tax code is massive and complicated — the perfect fodder for myth-making.Perhaps the most well-worn fallacy — shot down by many courts despite the best efforts of tightfisted taxpayers — is that federal taxes are actually illegal.It’s an argument often used by people who have turned to Tax Masters, which helps filers in trouble with the IRS, says company president Patrick Cox. Some …

Tips for Filing Taxes : Gambling Winnings Tax Tips

Question: Statistics: Suppose that the Internal Revenue Service (IRS) believes that the percentage of tax returns in …

Error is 10%. IF IRS is correct, what is the probability that in a random audit of 1000 tax returns, between 70 and 90 tax returns will be in error?

thanks

Answer: Let Xb be the number of tax returns in error. Xb has the binomial distribution with n = 1000 trials and success probability p = 0.1

In general, if X has the binomial distribution with n trials and a success probability of p then
P[Xb = x] = n!/(x!(n-x)!) * p^x * (1-p)^(n-x)
for values of x = 0, 1, 2, …, n
P[Xb = x] = 0 for any other value of x.

To use the normal approximation to the binomial you must first validate that you have more than 10 expected successes and 10 expected failures. In other words, you need to have n * p > 10 and n * (1-p) > 10.

Some authors will say you only need 5 expected successes and 5 expected failures to use this approximation. If you are working towards the center of the distribution then this condition should be sufficient. However, the approximations in the tails of the distribution will be weaker espeically if the success probability is low or high. Using 10 expected successes and 10 expected failures is a more conservative approach but will allow for better approximations especially when p is small or p is large.

In this case you have:
n * p = 1000 * 0.1 = 100 expected success
n * (1 – p) = 1000 * 0.9 = 900 expected failures

We have checked and confirmed that there are enough expected successes and expected failures. Now we can move on to the rest of the work.

If Xb ~ Binomial(n, p) then we can approximate probabilities using the normal distribution where Xn is normal with mean μ = n * p, variance σ² = n * p * (1-p), and standard deviation σ

Xb ~ Binomial(n = 1000 , p = 0.1 )
Xn ~ Normal( μ = 100 , σ² = 90 )
Xn ~ Normal( μ = 100 , σ = 9.486833 )

I have noted two different notations for the Normal distribution, one using the variance and one using the standard deviation. In most textbooks and in most of the literature, the parameters used to denote the Normal distribution are the mean and the variance. In most software programs, the standard notation is to use the mean and the standard deviation.

The probabilities are approximated using a continuity correction. We need to use a continuity correction because we are estimating discrete probabilities with a continuous distribution. The best way to make sure you use the correct continuity correction is to draw out a small histogram of the binomial distribution and shade in the values you need. The continuity correction accounts for the area of the boxes that would be missing or would be extra under the normal curve.

P( Xb < x) ≈ P( Xn < (x - 0.5) )
P( Xb > x) ≈ P( Xn > (x + 0.5) )
P( Xb ≤ x) ≈ P( Xn ≤ (x + 0.5) )
P( Xb ≥ x) ≈ P( Xn ≥ (x – 0.5) )
P( Xb = x) ≈ P( (x – 0.5) < Xn < (x + 0.5) )
P( a ≤ Xb ≤ b ) ≈ P( (a - 0.5) < Xn < (b + 0.5) )
P( a ≤ Xb < b ) ≈ P( (a - 0.5) < Xn < (b - 0.5) )
P( a < Xb ≤ b ) ≈ P( (a + 0.5) < Xn < (b + 0.5) )
P( a < Xb < b ) ≈ P( (a + 0.5) < Xn < (b - 0.5) )

In the work that follows X has the binomial distribution, Xn has the normal distribution and Z has the standard normal distribution.

Remember that for any normal random variable Xn, you can transform it into standard units via: Z = (Xn - μ ) / σ

P( 70 ≤ Xb ≤ 90 ) =

90
∑ P(Xb = x) = 0.1578600
x = 70

≈ P( 69.5 < Xn < 90.5 )
= P( ( 69.5 - 100 ) / 9.486833 < Z < ( 90.5 - 100 ) / 9.486833 )
= P( -3.214982 < Z < -1.001388 )
= P( Z < -1.001388 ) - P( Z < -3.214982 )
= 0.1583196 - 0.0006522629
= 0.1576674

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