Nothing in the world can stop us in our tracks faster than getting a notice from the IRS with the word “AUDIT” written on it.
This may be the one time in your life, you should be happy if you’re not making that much money. If you make between $25,000 and $50,000 a year, there is a .73% you’ll be audited, $50,000-$75,000 it’s .83%. Oddly, people who make between $0 and $25,000 have a higher rate of audit at 3.42%. The reasoning behind that: most people who make less than $25,000 will claim earned income tax credits. The IRS conducts audits to ensure the credits are not fraudulent. If you make over $10 million, that rate jumps to a 29.93% chance you’ll be audited.
The IRS has sophisticated computers running algorithms that seek out probable fraudulent tax returns. There are also items that trigger the audits such as high deductions, and certain types of deductions, such as auto, travel and entertainment expenses. Businesses showing losses, especially for more than one year are more likely to be audited. The computers also pick up any differences between what the taxpayer reports as income and what is on your W-2 and 1099 forms. Discrepancies will typically generate that audit.
Just because you may use a CPA, or do-it-yourself tax program, you’re still open to an audit.
Take the case of business owners Tim and Tracey Kerin. They now say they should have gone over every expense account with their CPA to make sure it complied with current tax laws. They didn’t. They were audited. They reached out to the Taxpayer Advocate Service, (TAS) who only further irritated the IRS agent. Tim claims the IRS agent put the “screws to us even harder and ignored the TAS”. Taking their complaints to a higher level, they were told it was ‘unfortunate’. To date, Tim has spent more than 30 months and $95,000 defending their companies in an expense audit. They are now facing an additional $15,000 in appeals to defend themselves against “the lies of the IRS agent”.
Dr. Kathy Gruver and her husband, a food and travel writer are both self-employed. They wrote off thousands of dollars in meals and wine. “We were smart.” Kathy said, “We took an ‘enrolled agent’ (attorney) with us who was prepared to deal with the IRS”. In the end, it was determined to be a math error, the audit ended after 40 minutes with no fines.
Joan Barthel, a freelance writer wasn’t as lucky. After their summer home burned down, they claimed the fire as a deduction. Joan claims, “Two IRS agents, came in like storm troopers, big bullies and said we owed $14,000.” Feeling like criminals, they had to give an insane level of detail to the IRS agents including the name and author of every book lost in the fire. They eventually settled to pay $4,000.
If you receive an Audit notice, don’t go it alone. A tax attorney is an expert when dealing with the IRS, they know how to negotiate and are very knowledgeable in current tax laws. A top tax attorney also affords you certain rights such as Attorney-Client Privilege. Our Denver tax attorney, Tyler Murray, was selected as the single Colorado tax attorney designated by the Colorado Bar Association to provide any and all tax law updates to the Colorado Bar Association Legislative Update, Case Law Update for the Colorado Bar Association Tax Section. and is the President of the Tax Bar Association for the Colorado Bar Association.
Call to make an appointment with our tax attorneys today and review the best options for your tax case: 303-618-2122. Or visit our website at www.gantenbeinlaw.com. Our office is located in Denver, Colorado and we serve clients throughout Colorado.