IRS Audit Tips and Advice when you receive an IRS Audit Letter
Published: 2019-07-25
Status:
Available
|
Analyzed
Published: 2019-07-25
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
Status
The speaker is discussing IRS audits.
"I'm confident it will reach $130,000 by 2025."
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The video will cover mail audits where all communication is through postal mail.
"today we're going to be discussing two types of audits so there are mail audits where all the correspondence is done via mail"
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The video will also cover in-person audits where taxpayers meet with an IRS agent at the IRS office.
"The second one is in-person audits that's where you go to the IRS office your scheduled appointment you go there and you hash it out in person with an IRS agent"
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Field office audits, which are more complex and involve visiting a business's location, will not be discussed.
"the third one is a field office visit but that's really regarding businesses that's much more complex where they go to your site of our location and we're not going to be discussing that one"
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Taxpayers should not miss the deadline for responding to a mail audit, as they are typically given 4-6 weeks to respond.
"don't miss the due date there is no reason why you should miss the due date you should have got at least three weeks it's probably four to six weeks from the deadline that they're requesting"
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Missing the deadline for a mail audit can lead to resolving the issue in tax court, which is described as a disaster.
"if you missed that deadline you're talking about resolving this Intex courts that's a disaster you don't want to end up there"
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IRS audits often focus on verifying if claimed deductions are legitimate and actually exist, rather than being fictitious.
"they're generally gonna be looking for two things one or the other or both they're going to be seeing if the deductions that you claimed are real whether they really exist or did you just create them out of thin air they've totally fictitious"
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Beyond existence, IRS audits may question the relevance or eligibility of claimed deductions to the taxpayer's specific situation.
"these deductions that you claimed we acknowledge that they're real but are they relevant to you to your situation or do you deserve them"
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For verifying the reality of expenses, deductions, or credits, the IRS often requires receipts or other supporting documentation, with receipts being the preferred form.
"sometimes they just want you to prove that the that the expenses or the deductions or credits are real in that situation they're gonna be looking for just receipts any kind of documentation receipts are always the best"
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In an audit of a Schedule C business, the IRS might question the validity of business meal expenses, not just the receipts, but whether the claim is appropriate.
"let's just say you're your small business you're your Schedule C sole proprietorship is getting audited and they're questioning your meals expense your business meals expense they're not questioning your receipts they're questioning you claim this as your meals expense"
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Historically, when taxpayers claimed an MBA as a job-related expense, the IRS questioned its relation to the job, not the expense occurrence or tuition amount.
"before people all before the whole tax world changes people are claiming the MBA deduction as a job-related expense so a lot of times in that situation they were not questioning the tuition amounts they were not questioning did this expense really occur they were questioning is this related to your job"
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When responding to an IRS audit, taxpayers should avoid self-incriminating statements and focus on justifying their claimed deductions or expenses.
"don't write anything that makes you look better don't write anything that's gonna self-incriminating when you're responding just know that they're trying to see any reason why you don't deserve that deduction or expense or credit"
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It is crucial to stay on topic during an IRS audit response, answering only the questions asked and presenting information in the most favorable light.
"stay on topic so just answer the question don't write anything that makes you look bad and try to put yourself in the most favorable light as possible and just stay on topic and write a good answer"
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In-person IRS audits are presented as a more difficult and complex version of mail audits due to the direct interaction with an agent.
"this is basically a more difficult version of the mail correspondent audit because you're gonna be in person with an actual IRS agents so it's gonna be more complex in Mormon fault"
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When scheduling an in-person IRS audit, it is important to make the appointment and arrive on time to avoid upsetting the IRS.
"please schedule an appointment and show up on the point that you don't want to get the IRS upset so schedule appointment show up on time on that day"
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IRS agents typically do not review an entire tax return or schedule during an audit; they focus on specific 'bits and pieces' within those sections.
"generally from what I've seen they're not gonna list everything they don't want to go through your whole tax return no even if it's a certain schedule or a certain page they're they don't even they're not interested in the whole page or schedule they're only interested in bits and pieces of that portion of that schedule"
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Schedule C (sole proprietorship) are audited frequently, and typically only a few of the numerous expense categories are targeted, not all of them.
"Schedule C is a sole proprietorship or independent contractor or basically a small business owner that's unincorporated so if you have Schedule C you know you're gonna probably have ten or fifteen or twenty expense categories they're most likely they are only gonna be targeting a handful of those"
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Expense categories not explicitly listed in the audit notice should not be a concern for the taxpayer as they are considered off-topic by the IRS.
"the ones the categories that are not listed you don't even need to worry about them they're not interested in it that's off topic"
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Taxpayers attending an in-person audit must bring all documentation explicitly requested in the audit notice.
"this is what you need to bring with you to the examination so whatever is listed please bring this"
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Taxpayers have the right to bring anyone (family, friend, accountant, attorney) with them to an IRS audit without needing a formal power of attorney.
"you can bring anyone with you to the audits you don't need power of attorney you can have power of attorney so you can bring anyone family friend your accountants your attorney whoever so you can bring anybody with you and you don't need power of attorney"
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IRS agents are tasked with disallowing deductions or assessing additional tax, meaning taxpayers need to defend their claims.
"basically there ought to get you it you need to defend yourself because basically they're trying to either disallowed deductions they're trying to you know they're trying to add more tax to you you know I mean this is their job this is their job"
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During an in-person audit, it's crucial to only discuss the expense categories mentioned in the audit notice to avoid inadvertently opening up new areas for examination.
"you do not want to go off to a separate expense category and open up a door for them to you know examine you further you know if they're not interested in your travel expenses don't talk about travel expenses because you might say something that gets them suspicious"
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The physical environment of an IRS audit office is described as a small, messy cubicle with a single agent, often looking 'dirty and nasty'.
"it's gonna be you're gonna be dealing as one IRS agent in a tiny cubicle and usually their cubicles aren't just like mounted with just papers everywhere it's it's pretty it's pretty dirty and nasty to do and everything's gonna look filthy and everything so look how they did basically it's it's pretty it's pretty much not what you expect it's one IRS agent in a tiny little cubicle and it's just a mess"
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Maintaining a respectful, polite, and nice demeanor with the IRS agent during an audit is advised to avoid making the situation more difficult.
"be nice just you know don't be a jerk to the agent that's the last thing you want to do as I told you they are trying to find ways to get you but in your response always be respectful always be polite always be nice because if you get on their bad side I mean they're gonna they're gonna find other ways to get at you"
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Showing receipts is often insufficient; IRS agents may require further explanation of how expenses are related to the business, even for seemingly straightforward items like cost of goods sold.
"now show me how these are related to your business and even if they're a very self-explanatory like cost of goods sold you know inventory you know sometimes they might they might drill deep like very deep and they want more evidence"
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For travel expenses, IRS agents might request more than just receipts, including email correspondence, event brochures, and itineraries to justify the business necessity.
"now give me email correspondence of who you are talking to over there on why it was necessary for you to travel there and lodge there okay give me brochures from the events that you are attending okay give me your itinerary for the event that you were supposedly at"
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The depth to which an IRS agent will investigate a particular expense category is somewhat at their discretion, emphasizing the importance of maintaining a good relationship with the agent.
"they can go as deep as they want and you know they can make their life a living hell so but circling back that just goes back to be nice because you know it's and there is kind of at their discretion of how deep that they can dig in for a particular category or request"
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IRS audits rarely conclude in a single meeting; typically, there will be a follow-up request for additional receipts or documentation.
"I can't remember a single audit where we just ended on the first meeting usually there's going to be a follow-up they're gonna say now thanks for coming in we just want you know this this and this we need we want these receipts or we want some documentation in that category"
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