Sole Proprietors Watch Out–Your Return May be Assigned to a Revenue Agent

Our sources are reporting that Treasury inspectors have recently lambasted IRS agents for not effectively finding all the unpaid taxes of sole proprietors. The Treasury inspectors completed a study of correspondence examinations on 2007 tax returns only to find that IRS examiners missed more than $16 million in unpaid taxes on sole proprietors in their limited sample.

It seems the failures lie in the correspondence examination process. In a face-to-face audits, the IRS process typically uncovers unfiled tax returns and unreported income. But with correspondence examinations, auditors failed to uncover these basic facts. As logic dictates, adding new steps to an already slow correspondence examination process will not speed up revenue collection for the IRS in a time when the tax gap continues to grow and the Treasury faces incredible pressure to generate additional revenue.

Face-to-Face Audits to Increase for Sole Proprietors

The IRS solution will reportedly be to adjust its selections procedures for auditing tax returns. This adjustment will call for tax returns from sole proprietors with unfiled tax returns or suspected unreported income to go directly to IRS Revenue Agents instead of going through the automated correspondence examination process.

In other words, if you are a sole proprietor with unfiled tax returns or unreported income, watch out. When Revenue Agents call, they are looking for what you have done wrong and for what they hope you are hiding. It is generally in your best interest to demand that a Revenue Agent speak to your tax representative before you say something you cannot take back. Talking to Revenue Agents can have devastating consequences to your personal finances and on your business.

At Tax Masters, we handle more audits in a day than most CPAs handle in a career. Do not wait until you are contacted by a Revenue Agent to act, you need to get into compliance before the IRS sends in the Agents. It is far less expensive to solve the problem before it is a crisis. If you are contacted by a Revenue Agent, we suggest you call us immediately. Speaking to them will likely make your problem much worse. Refusing to speak to them will make them quite mad, but it is your best option at that point. Be respectful, but firm and inform them you intend to hire a representative and you wish them to speak with your representative. As soon as you close the door or hang up the phone, call us at 1-800-581-0456 to discuss your tax problem and to hire the audit defense representation you deserve. Don’t wait for an appointment, call us today.

Protect Your Business–Hire Tax Masters for Audit Defense

An audit is serious and your business may depend on hiring the right audit defense. Choose wisely. Choose Tax Masters.

Until you need us,

Patrick Cox Tax Masters

Patrick Cox is President, CEO, and Board Director of Tax Masters, Inc. (TAXS), a company dedicated to helping consumers solve their tax problems. Patrick Cox is a tax expert who founded Tax Masters in 2001, which has become one of the most effective IRS tax representation firms in the IRS tax relief industry. Patrick Cox and Tax Masters are located in Houston, Texas and the company is publicly traded under the ticker symbol TAXS.

We learned recently at TaxMasters, Inc. (TAXS) that more tax audits are on the horizon. With the current tax gap weighing heavily on the IRS, agents are looking for revenue wherever they can find it. IRS audits are always a source of heartburn for the taxpayer being audited, but when a business gets audited, the potential for disaster threatens not just one person, but every person who depends on that business for income, products, and services. If your business is facing an audit, TaxMasters offers the tax audit help you need.

Random Employment Tax Audits Going Up 33%

According to reports in The Kiplinger Tax Letter, the IRS will increase the number of random employment tax audits 33 percent over the next three years. The IRS hopes this 33 percent increase in random employment tax audits will help them collect additional revenue and update their estimates of the tax gap. The first audits are scheduled to get under way in November.

What the IRS is Looking For

Reportedly, IRS agents will be looking for employers that are violating worker classification rules and that abuse the tax rules for executive compensation and employee fringe benefits. The IRS is also reported to be looking for S corporations that pay their owners meager or non-existent salaries, which allows a corporation to pass profits through to its shareholders as dividends to save on payroll taxes. In other words, if your company is engaged in issuing 1099s instead of W2s for fulltime employees, offering executive bonuses, providing cell phones to employees, or passing out high dividends, look out. Make sure you work with a qualified tax preparer to put together all the information you need to support your case. If you don’t have that information at hand, you may be in line for a serious IRS audit.

Finding Tax Audit Help

If you are one of the unfortunate companies to be selected for a random employment tax audit or any other IRS audit, you may need some help. TaxMasters has a team of audit professionals standing by ready to provide the top-notch tax audit help you will need to face an IRS audit. Understand that any time the IRS amends a return or sends you a change notice, that constitutes an audit. That means you have the right to challenge the IRS audit findings. If you have been hit with an unfair or inaccurate assessment because of an audit, you need to contact us today.

Until you need us,

Patrick Cox Tax Masters

Patrick Cox is President, CEO, and Board Director of Tax Masters, Inc. (TAXS), a company dedicated to helping consumers solve their tax problems. Patrick Cox is a tax expert who founded Tax Masters in 2001, which has become one of the most effective IRS tax relief teams in the tax representation business. Patrick Cox and Tax Masters are located in Houston, Texas.

IRS Notice CP 11 - Changes to Tax Return, Balance Due

The IRS sends notice CP 11 to inform you they made changes to your tax return that resulted in you owing more money to the government. In other words, they conducted an electronic audit and made changes to your tax return based on that audit. Most taxpayers who receive a CP 11 don’t realize they have been audited and that they may benefit from seeking tax audit help.

CP 11 instructs you that you should pay the tax liability reported in the body of the notice in full. Sometimes this notice includes additional penalties and interest that have accrued on the amount owed, and it may also include an installment agreement request form.

IRS Notice CP 11 is the Result of an Audit

Any time the IRS changes your income tax return, it is the result of an IRS audit. As such, you have the right to appeal the findings that triggered the change. One thing we know well at Tax Masters is that you should never assume that IRS changes to a return are correct. As the person responsible for paying your tax liability, it’s in your best interest to make sure the IRS hasn’t made a mistake.

CP 11 notices are typically generated after the IRS computers catch what they consider to be an issue or problem with your tax return in what is referred to as an electronic audit. In this type of audit, IRS systems detect an anomaly in your return, correct it automatically, and then generate the bill (CP 11). Very little, if any, human interaction is involved with this process. And as we all know, computer applications and scripts are only as good as the logic they are based on. It’s entirely possible that you have received a CP 11 in error or that the information in the notice is based on erroneous data or assumptions. 

We find an amazingly high error rate in favor of our clients with tax returns that have been automatically updated by IRS systems.

If you receive an IRS notice CP 11, contact us and let us talk through the details of your situation. It may be that you don’t owe what it is the IRS computers claim you owe.

Until you need us,

Patrick Cox Tax Masters

Types of IRS Tax Audits

An IRS audit can be one of the most trying experiences you will face. IRS auditors are notorious for looking until they find a problem they can use to extract more taxes from you. As I’ve stated before, we believe taxpayers should pay their fair share of taxes, but we also believe that you shouldn’t pay one dime more than your fair share. And while a taxpayer facing a field audit or an in-office audit is typically terrified, taxpayers who have had a correspondence audit typically don’t even understand that they’ve been audited. There are three types of IRS tax audits.

Correspondence Audit

The correspondence audit is the most common type of IRS tax audit. It might surprise you to know that most people who have been singled out for a correspondence audit don’t even know they’re being audited. The reason is that the IRS doesn’t come out and declare they are auditing you. Instead, they send a notice to you indicating that the IRS made a correction to your tax return. While a correspondence audit could technically be used to notify you that you owe less than you paid, it is most commonly used to inform you that you owe more and payment is due immediately. The IRS may also ask you to send in additional information to clarify something on your tax return. Even with a correspondence audit, it is usually a good idea to have a tax representative help you address the IRS in a way that won’t get you into trouble. Providing the wrong kind of information can lead to expansion of the audit into more areas or a more detailed investigation into items not initially targeted in the correspondence audit.

Field Audit

Among the types of IRS tax audits, the field audit is the least likely to involve individuals. Field audits are primarily used to audit businesses. The IRS sends an auditor, or a team of auditors, to a business to examine the financial books, documents, and transactions, generally to make sure the business is not short-changing the IRS or cooking their books. Generally in these circumstances, the IRS auditors will work with the corporate financial officer to go through the business’ income and expenses.

In-Office Audit

The in-office audit is the type of IRS tax audit most people think about when talking IRS audits. The IRS schedules an appointment for you to bring all your tax documentation to an IRS office location. At the IRS offices, you would then meet with an IRS auditor and substantiate your tax return with your supporting tax documentation. While it’s never a good idea to face an IRS tax audit on your own, if you are facing an in-house audit, you need to seek IRS audit help before responding to the IRS. The IRS auditors assume you have full and complete knowledge of the tax laws and regulations of this country. They also assume you have read and understood each of the thousands of publications issued by the IRS on various tax topics. Tax Masters understands that this is not what you do, but it is what we do.

IRS Audit Help

At Tax Masters, we supply more people and businesses with IRS audit help in one year than most CPA firms or accounting firms do in their entire professional life. Tax Masters has a great success record with all three types of IRS tax audits. Whether the IRS notifies you that you owe more than you reported on your tax return, shows up at your door asking to review your books, or schedules an in-office audit, the Tax Masters audit team has the experience and the latitude to help you resolve your IRS audit favorably. Don’t make the mistake of going through any type of IRS tax audit alone. Tax audit help is a simple click away.

Until you need us,

Patrick Cox Tax Masters

Why Not Represent Yourself with the IRS?

I had a conversation this week with a bright enough fellow. He had gotten behind with bills and taken his 401(k) out to live on. Before he knew it, he was hit with the early withdrawal penalty and was soon in serious trouble with the IRS, owing tens of thousands without a way to pay it. He basically called to get as much information as he could out of us in hopes of taking what little information he could glean from our conversation so he could represent himself with the IRS. I strongly encouraged the gentleman not to take that course of action, but at the end of the day, sent him on his way with our best wishes and the reassurance that we would be here to help pick him up even after he made all the mistakes he was sure to make with the IRS. For the record, the worse off your problem, the harder it is to fix, the more it costs to fix, and the longer it takes. So the sooner you address your issues in the right way, the better off you’ll be.

From the Horse’s Mouth

I commented in January about Nina Olson’s report from the National Taxpayer Advocate’s office regarding her take on just how well the IRS did in 2008. One of the things she discussed at length is the fact that the tax code has become so complicated and convoluted that an entire industry is currently being supported by taxpayers who are simply trying to comply with existing tax laws.

It comes as no surprise that she goes on to discuss the fact that taxpayers with serious tax issues tend to benefit from IRS tax representation. Based on the statistics given by Ms Olson, we were able to draw the natural conclusion she could not explicitly state because of political reasons: Taxpayers are achieving more favorable results if they engage a qualified IRS tax representative.

Dangers of Engaging the IRS on Your Own

I’m going to remove my TaxMasters-hued glasses for a moment and simply record some things you might expect from the IRS if you are one of the self sufficient few who insists on doing this yourself. Before I continue, let me emphatically state that I do not recommend that you engage the IRS by yourself unless you are an enrolled agent, CPA, tax attorney, or another type of tax professional accustomed to dealing with the IRS routinely. With that caveat out of the way, here’s what the IRS has been reported to do when engaging in audits and aggressive collections activities. The IRS can:

• Assume the worst about you–that you are a tax cheat, that you are lying, that you are intentionally and criminally defrauding the US Treasury of funds
• demand that you pay immediately all the money you owe
• When you inform them you can’t pay the full amount they say you owe, set up payment plans you might not be able to afford because the IRS doesn’t ask you about all your expenses and you don’t know which expenses qualify, which don’t qualify, and how to present your bills to benefit your case
• File returns for you when you fail to file, excluding any non-standard deductions to which you are entitled, and then send you a bill to pay the full amount immediately along with all penalties and interest
• Ask you questions in an audit specifically designed to catch you off-guard to uncover additional information the IRS can use against you to collect even more revenue
• Ask your family, friends, neighbors, coworkers, clients, business associates, and employers leading questions about your financial situation, your purchases, your habits, and even your criminal history (whether you have one or not) in an attempt to get as much information against you as possible; and if they refuse to cooperate, there is always the fear of the IRS looking more closely into their affairs
• Take your money and assets regardless of how much you need to make payroll or to pay the bills necessary to keep your household or business solvent

The TaxMasters Benefit

We have made a living at TaxMasters by knowing what to expect from the IRS and by using their own rules, tendencies, and habits to protect our clients. For the do-it-yourself tax negotiators, I have a vital point to make. If you are facing an IRS problem, regardless of how you arrived at that problem, you are different from TaxMasters in one very important aspect. While you are facing uncertainty and fear about facing the IRS head on, we don’t have that fear at TaxMasters. We don’t fear negotiating with the IRS because we know their rules and we study their tactics and tendencies. We don’t get caught off guard or surprised by the IRS tactics that tend to strike fear into taxpayers.  We are successful at negotiating with the IRS because we do it every day and understand what constitutes a real threat and what IRS actions amount to nothing more than a toothless bark. It’s far easier to stop a punch if you know exactly when and how it will be thrown.

It’s Your Call

So think about it, yes? Those of you feverishly working through the latest do-it-yourself book or tax prep for dummies paperback, take a minute to think this through. Even if you are up to all the technical aspects of negotiating with the IRS, do you know when your negotiation tactic can be considered criminal? Do you know what questions the auditor can ask in an audit and how to redirect the auditor if they step out of line? Are you ready to use the law not only to represent yourself, but to hold the IRS agent pounding on your door accountable?

But even more important than any of these things… If you are afraid of the IRS, they will exploit that fear and are likely to take from you far more than you, or we, think is fair.

Until you need us,

Patrick Cox TaxMasters

IRS Audits Increasing

The $290 billion tax gap looks even worse than it did just a month ago. There’s nothing like the threat of economic disaster to put everyone on edge. Congress gets fidgety when there’s no money in the till and the IRS feels an increasing pressure to collect, collect, collect. Even before the recent economic troubles, everyone expected the number of IRS audits to continue to increase. It’s clear to us that the efforts to collect more revenue will reach even new heights over the next months.

Trending Upward

The number of tax returns being reviewed by the IRS has more than doubled in the last 7 years. In 2000, the IRS examined 1 out of every 202 returns. Last year, they looked at 1 out of every 97. In October alone, the IRS is expected to send more than 30,000 so-called soft notices by mail. Most of these notices will be prompted by inconsistencies in returns that cause the IRS to suspect you have somehow under reported your income.

So if you’re one of the unlucky, what do you do?

An IRS Letter is an IRS Audit

Make no mistake. Any communication from the IRS asking for clarification or more information about your tax return is an audit. This is dangerous territory. First things first. Take a breath. Realize you’re being audited by the Internal Revenue Service. Then act appropriately.

Use Your Head

If you receive any communication from the IRS requesting information or alteration to your tax return, I strongly encourage you to seek help. Talk to your tax or financial professional about the situation immediately. If you don’t have one or you are not sure of their competence level on this, contact a firm that specializes in IRS matters such as TaxMasters. We handle more audits in a year than most firms do in a lifetime.

The audit experience can be incredibly complex, particularly when trying to handle the matter yourself. With the increased pressure to find more revenue, IRS agents are up to many of their old tricks and are not above taking advantage of the unsuspecting. Don’t let the IRS turn a simple mistake into a costly nightmare.

As always, TaxMasters is here to help. Call our tax professionals today at (866) 694-4018 or go to www.txmstr.com and let us get between you and the IRS.

We are here to help.

Until you need us,

Pat Cox