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!