http://klasing-associates.com/tax-audit-representation/ Did you cheat on your taxes and are now under audit? Call Los Angeles tax attorney and CPA David Klasing 800-681-1295 How are returns selected for audit Diff Scoring System “Discriminant Function System” Unreported Income DIF (UIDIF) score rates 1099 K’s Bank, debit and credit card account reconciliation to returns Red flags Trade or business deductions (buried personal expenses?) Net Operating Losses Capital Loss Deductions Amended Returns That Result in Refunds or Large Additions to Tax IRS starts with the worst scores and works to lower scores till they run out of budget Correspondence Audits IRS Computer Generated Matching of Third Party Information to Return 1099-K Analysis (Ratio of Debit and Credit Card Sales to Total Sales) Cash? Likelihood of repeated audits over same issue No guarantee your correspondence will not expand scope of the audit Problems with resolution of complex tax issues – need to file Tax Court Petition Much more serious than a correspondence audit Need to submit to an interview Admissions Body Language Intimidating Environment Tendency to expand the number of years under audit IRS “Playbook” Expand Scope if hit Pay dirt (Three Year Statute) Exploratory Three Items Selected by DIF Analysis 6 year SOL where 25% Understatement in Income or Foreign Reporting Problems Vast majority of Criminal Tax Cases come out of civil audits Maintaining improper or disorganized records is not helpful to taxpayers If IRS gets confused, practically speaking, it will simply assert a tax liability Burden of proof on the client IRS will not do reconstructive accounting Take it to cash approach Disallow expenses that cannot be proven Prove it or lose it! Assess all deposits as income where cannot prove non taxable Loans Unearned Income Do not face a IRS FTB, EDD or BOE audit alone Need a buffer between taxing authority and yourself Prevent taxing authority from obtaining criminal admissions / evidence of “intent” Direct Evidence versus Circumstantial Evidence Your outgunned without an experienced representative on your side Government competently deals with complex tax issues on a daily basis CPA, Attorney, Masters Degree in Taxation, 20 + years of tax controversy experience, Audit background Attorney Client Privilege Protect your communications Protect defense work product Client statements regarding documents, financial statements and tax returns are admissible evidence in a subsequent criminal trial Lying to a federal agent is a felony in an of itself Obstruction Possibility of other tax years or entities coming under audit Complications with your state returns (information sharing) Original preparer is your kryptonite – Government witness number 1 CPA, EA, CTEC Certified, Unlicensed, Attorney: Preparers Strong motivation to protect their own reputation (conflict of interest) Preparer’s file smoking gun (incomplete, inaccurate or worse yet “cooked books” Hiring our firm can make all the difference! 20% negligence penalty Jail time, $250,000 penalty, Restitution, Unlimited Statute of Limitations, Cost of Prosecution, Loss of Profession, Social Stigma / Public Humiliation Many tax convictions stem from representation by original preparer or client themselves To date (may change) perfect record of success!