Getting a letter from the IRS means one of two things – either a refund or a bill. While the former may always be welcomed, the latter is probably not. Under today’s Internal Revenue Code, very few people get things absolutely right – that goes both for the tax filers and the agents reviewing the returns. At DOROT & BENSIMON PL we help our clients get things right!
Whether working to reduce your IRS debt or fighting to get your full refund, our attorneys will fight for your rights. Our attorneys have experience in cutting the red tape to get your problems solved in the most favorable way, quickly.
Offer In Compromise
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS will consider your unique set of facts and circumstances:
Ability to pay;
The IRS generally approves an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time. The Offer in Compromise program is not for everyone and at times may require a thorough analysis and significant disclosures and legal forms to fill. At DOROT & BENSIMON PL, our attorneys will walk through the process with you to assure that your rights are protected and that you maximize your application.
An IRS audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate.
Selecting a return for audit does not always suggest that an error has been made. Returns are selected using a variety of methods, including:
Random selection and computer screening – sometimes returns are selected based solely on a statistical formula.
Document matching – when payor records, such as Forms W-2 or Form 1099, don’t match the information reported.
Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
An audit may be conducted by mail or through an in-person interview and review of the taxpayer’s records. The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit). The IRS will tell you what records are needed. Audits can result in no changes or changes. Any proposed changes to your return will be explained.
Should your account be selected for audit, you will be notified in two ways:
- By mail, or
- By telephone
In the case of a telephone contact, the IRS will still send a letter confirming the audit. E-mail notification is not used by the IRS.
Publication 1, Your Rights as a Taxpayer, explains your rights as a taxpayer as well as the examination, appeal, collection, and refund processes. These rights include:
- A right to professional and courteous treatment by IRS employees.
- A right to privacy and confidentiality about tax matters.
- A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
- A right to representation, by oneself or an authorized representative.
- A right to appeal disagreements, both within the IRS and before the courts.
- The length of each audit varies depending on the type of audit, the complexity of items being reviewed, the availability of information being requested, the availability of both parties for scheduling of meetings and your agreement or disagreement with the findings.
- A written request for specific documents needed, will be provided to you.
- The law requires you to retain records used to prepare your return. Those records generally should be kept for three years from the date the tax return was filed.
- The IRS does accept some electronic records. Contact your auditor to determine what can be accepted to ensure a software program is compatible with the IRS’s.
- An audit can be concluded in three ways:
- No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
- Agreed: an audit where the IRS proposed changes and the taxpayer understands and agrees with the changes.
- Disagreed: an audit where the IRS has proposed changes and the taxpayer understands, but disagrees with the changes.
If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted.
If money is owed, there are several payment options available. Publication 594, The IRS Collection process, explains the collection process in detail.
If you disagree with the audit findings, a conference with a manager may be requested for further review of the issue or issues. In addition, Fast Track Mediation or an Appeal request may be filed.
- IRS Audit FAQs
- Publication 556, Examination of Returns, Appeal Rights and Claims for Refund
- Publication 1, Your Rights as a Taxpayer
- IRS Accepts Taxpayer Accounting Records in Electronic Format for Small Business/Self-employed Examinations
- Tax Topics – Topic 151 Your Appeal Rights
- Burden of Proof
- Small Business/Self-Employed Tax Center
- Self-Employed Individuals Tax Center
- Publication 594, The IRS Collection Process
Before being noticed by the IRS, you may have found yourself in a tight spot and desire to correct a previous wrong. That is, through review of your own returns, newly learned information or any other means, you might have discovered that you have failed to comply with one or more obligations you have to the IRS. With the complexity of the Internal Revenue Code, this is a very common occurrence and does not mean you are a “bad person.” Or, in another situation, you might have been knowingly failing to meet certain obligations with the IRS and have come to a point in your life where you want to “clean things up” so you can sleep better at night. For people like just like you, the IRS has implemented the so called “Voluntary Disclosure Procedure” – a way by which you can come clean at little or no penalties – both civil and criminal. At DOROT & BENSIMON PL, we assist our clients in coming clean in the least costly way so they can “clean things up,” “sleep better at night” and put the fear of an IRS audit behind them.
Note that the IRS has implemented a number of specific Offshore Voluntary Disclosure programs since 2009 – these specific programs are discussed in detail in the FBAR and Voluntary Disclosure section of our website.
It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended. This voluntary disclosure practice creates no substantive or procedural rights for taxpayers, but rather is a matter of internal IRS practice, provided solely for guidance to IRS personnel. Taxpayers cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution.
A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended. This practice does not apply to taxpayers with illegal source income.
A voluntary disclosure occurs when the communication is truthful, timely, complete, and when:
- the taxpayer shows a willingness to cooperate (and does in fact cooperate) with the IRS in determining his or her correct tax liability; and
- the taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable.
A disclosure is timely if it is received before:
- the IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation;
- the IRS has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance;
- the IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer; or
- the IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena).
- Any taxpayer who contacts the IRS in person or through a representative regarding voluntary disclosure will be directed to Criminal Investigation for evaluation of the disclosure. Special agents are encouraged to consult Area Counsel, Criminal Tax on voluntary disclosure issues.
Examples of voluntary disclosures include:
- a letter from an attorney which encloses amended returns from a client which are complete and accurate (reporting legal source income omitted from the original returns), which offers to pay the tax, interest, and any penalties determined by the IRS to be applicable in full and which meets the timeliness standard set forth above. This is a voluntary disclosure because all other elements mentioned above are met.
- a disclosure made by a taxpayer of omitted income facilitated through a barter exchange after the IRS has announced that it has begun a civil compliance project targeting barter exchanges; however the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intention to do so. In addition, the taxpayer files complete and accurate amended returns and makes arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. This is a voluntary disclosure because the civil compliance project involving barter exchanges does not yet directly relate to the specific liability of the taxpayer and because all other elements mentioned above are met.
- a disclosure made by a taxpayer of omitted income facilitated through a widely promoted scheme regarding which the IRS has begun a civil compliance project and already obtained information which might lead to an examination of the taxpayer; however, the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so. In addition, the taxpayer files complete and accurate returns and makes arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. This is a voluntary disclosure because the civil compliance project involving the scheme does not yet directly relate to the specific liability of the taxpayer and because all other elements mentioned above are met.
- a disclosure made by an individual who has not filed tax returns after the individual has received a notice stating that the IRS has no record of receiving a return for a particular year and inquiring into whether the taxpayer filed a return for that year. The individual files complete and accurate returns and makes arrangements with the IRS to pay the tax, interest, and any penalties determined by the IRS to be applicable in full. This is a voluntary disclosure because the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so and because all other elements mentioned above are met.
Examples of what are not voluntary disclosures include:
- a letter from an attorney stating his or her client, who wishes to remain anonymous, wants to resolve his or her tax liability. This is not a voluntary disclosure until the identity of the taxpayer is disclosed and all other elements mentioned above have been met.
- a disclosure made by a taxpayer who is under grand jury investigation. This is not a voluntary disclosure because the taxpayer is already under criminal investigation. The conclusion would be the same whether or not the taxpayer knew of the grand jury investigation.
- a disclosure made by a taxpayer, who is not currently under examination or investigation, of omitted gross receipts from a partnership, but whose partner is already under investigation for omitted income skimmed from the partnership. This is not a voluntary disclosure because the IRS has already initiated an investigation which is directly related to the specific liability of this taxpayer. The conclusion would be the same whether or not the taxpayer knew of the ongoing investigation.
- a disclosure made by a taxpayer, who is not currently under examination or investigation, of omitted constructive dividends received from a corporation which is currently under examination. This is not a voluntary disclosure because the IRS has already initiated an examination which is directly related to the specific liability of this taxpayer. The conclusion would be the same whether or not the taxpayer knew of the ongoing examination.
A disclosure made by a taxpayer after an employee has contacted the IRS regarding the taxpayer’s double set of books. This is not a voluntary disclosure even if no examination or investigation has yet commenced because the IRS has already been informed by the third party of the specific taxpayer’s noncompliance. The conclusion would be the same whether or not the taxpayer knew of the informant’s contact with the IRS.