Many taxpayers live in fear of the Internal Revenue Service, and any type of notice or contact from the IRS causes them major distress. It is really unnecessary to live in such fear, but wise to heed some simple practices that can keep you, the taxpayer, off the IRS’ radar screen.
The most egregious offense that can be committed by a taxpayer is the under-reporting (or non-reporting) of income. The IRS takes this very seriously, and if they receive information that an individual or business owner is trying to hide income, a criminal investigation can result. Businesses who normally receive cash payments are especially susceptible to investigations. To stay out of trouble with the IRS in this area, make sure that you as a taxpayer, especially a business owner, report all income. Cash collected from the sale or products or services in a business IS income. There is no amount or percentage of cash that can be legally skimmed. Diverting payments that should be made to the business without counting them as income is another prohibited practice. Gifts from family or other individuals or loans received by an individual or business are not income, and do not need to be counted, but should be documented, in case of an audit, to prove to the IRS that these were not income.
Overstatement of deductions is also another problem area. The IRS, in an audit, can disallow expenses that are un-documented, or are not appropriate items to deduct. The IRS allows a business to deduct all expenses that are ordinary and necessary for that type of business. Individuals may deduct all allowable items, such as mortgage interest, real estate taxes, charitable contributions, among others. In the event of an audit, the IRS usually requires proof of payment of such expenses (cancelled check or credit card receipt), as well as a vendor receipt. If the IRS finds that these are
missing, or if the expense is not appropriate for the taxpayer, they can disallow the expense. Taxpayers who keep appropriate documentation have nothing to fear in the event of an audit.
If you receive an IRS notice in the mail, do not panic, and do not simply pay the notice without checking its validity. Most IRS notices are based upon facts that are not accurate or complete, and usually can be resolved simply by providing the IRS with appropriate documentation. We assist our clients with dealing with their IRS notices, and most of them end up being resolved without any additional payment to the IRS by the taxpayer.
If the IRS calls you on the telephone, THIS IS PROBABLY A SCAM. There is a prevalent scam that is currently being run that is very convincing. It starts with a phone call from “THE IRS” to a taxpayer, telling them that they owe a past due balance, and must pay it immediately, over the phone, or they will risk jail, deportation, or other unpleasant consequence. If you receive such a call, just hang up, and do not give the caller any identifying information. The IRS does not call taxpayers to report that they have overdue balances. This is only done by mail.
If you receive a visit from the IRS, take it very seriously and call an attorney immediately. If the IRS gives you indication that there is a criminal investigation, you have the same “Miranda” rights that you hear about on TV crime shows. You do not have to speak to the agent, and you have the right to an attorney. It is best to call an attorney right away, and not attempt to handle this type of matter on your own.
It is always best to do the right thing when it comes to reporting your taxable income, taking deductions, and filing your tax returns on time. It is also vital to keep appropriate records so you can prove that you did the right thing if the IRS inquires. We are available to assist taxpayers in filing returns properly, setting up record-keeping systems, and responding to all types of IRS inquiries, even criminal investigations. Please don’t hesitate to call us if we can help you navigate taxes so you don’t have to live in fear of the Internal Revenue Service.
Article by Tom Brodersen, Esq.