Watch the Video HERE
Listen to the PodCast HERE
Read the Blog Post HERE
Download this page in PDF HERE
Transcript:
Pursuant to Internal Revenue Service guidance be advised that any federal tax advice contained in this program is not intended to be used and cannot be used by any person or entity for the purpose of avoiding any tax penalties that may be imposed by the Internal Revenue Service or any other US Federal taxing authority or agency or promoting marketing or recommending to another party any transaction or matter addressed in the show the opinions expressed by the host and the guests are their own and may not be used as authoritative advice any use of this material without the written consent of the host is strictly prohibited.
Steve:
Welcome Back. I am your host Attorney Steven Leahy. This is the IRS Radio Hour on AM 560 The Answer.
Jim:
Well Steve, this is the part we are coming to your Blog, Blag, Bloog.
Steve:
I understand.
Jim:
Choose which one you like and go with it.
Steve:
And go with it. Remember, the Blag
Jim:
Blog.
Steve:
Is found on ChicagoTaxTeam.com.
Jim:
Is there a phone number that goes with that?
Steve:
Opem Tax Resolution & The Law Office of Steven A. Leahy, PC – who are our sponsors here and you can call them at 312-664-6649 if you have any tax issues, or any other debt related issues.
Today, I’m going to talk about an article that I wrote this week – I am kind of going with my theme over the last couple of weeks, which is about tax preparation. Right, it’s the first of the year. Everyone is worried about their taxes. January 20th is the date you can start filing your tax return. If, of course, the IRS can stay open that long.
Jim:
That’s another segment.
Steve:
Yes. That’s the next segment.
Jim:
That’s a teaser ladies and gentlemen.
Steve:
So, I am going to talk about audits today and 9 things that can happen to cause these red flags. Now, we have talked about audits before on this show and what happens. The technicalities and how the IRS goes about it. They have algorithms where they go through it. They go through all of the
Jim:
Al Goreisms? Lock Box.
Steve:
Remember, most of the tax returns are filed electronically.
Jim:
That’s right.
Steve:
They go through them electronically and they go through a lot of this to find out which ones they are going to audit. So, these are the red flags. The IRS calls an audit an Examination of Return. That got fancy names for everything over there.
Jim:
Say Cough.
Steve:
I have 9 things that will cause the red flags to the IRS, that might cause an audit. And the first one is – make a mistake on your tax return. OK. Now days we use software, so all the math. There shouldn’t be math errors. Because that should all be taken care of through the software, unless you are still one of those people who are doing it by hand. And I don’t know why. But if you have math errors on your return, that is certainly going to cause a problem with the IRS, and they are going to look at your return.
Another thing that might cause it, again this goes before filing electronically, did you sign it. People would fail to sign the return, and that would cause a problem.
Another big problem is people don’t put the right social security number down, either for you or for dependents. You have to put your dependents social security number. Sometimes people transpose numbers, or forget to put it down. This is causes the IRS to take a look at it and see why it comes up.
Second this is, if you are filing it out and you round off all your numbers, round off all your numbers – in the real world things don’t happen in round numbers. So, if you are trying to fill out your tax return and all my deductions are in round numbers, it kind of tells the IRS “he is really not using accurate information.”
Jim:
I didn’t think of that.
Steve:
So, they look at it. Wait a minute this isn’t right. If you are doing that, it’s going to cause the IRS to take a look at it.
Another problem is…
Jim:
Even if you round off to the higher number?
Steve:
Yes. They don’t know it’s a higher number until they audit you. And then they will slap you on the back and say “Thank you for paying more then you had to.”
Jim:
And we will give you your money back.
Steve:
Yeah. Sure they will. Next thing is to file late, or don’t file at all. Right. If I file with everyone else there is all of these other returns going through. They don’t have the time to look at everyone’s return. A very small percentage are going to be audited. But if you file late –
Jim:
They aren’t doing anything.
Steve:
You are the only one filing. So, they are going to take a look at it. Or, if you don’t file at all – we talk a lot about this on this show about what they call an SFR, Substitute for Return. If they think you owe money, they will go back and file they will file the returns for you. And then you will want to go back and amend it. Guess what? If you amend the return, you are going to have a person looking at it. And looking at every entry and deciding whether it is accurate or not and asking you for substantiation for every entry. Very onerous and time consuming.
Another one is, be a tax protester. Take the position that the IRS does not have the authority to tax you. Some of them fill out tax forms and say Zero – I don’t owe you anything because you don’t have the authority. So, I ain’t paying you.
Guess what? You are going to be audited.
Jim:
What was his name?
Steve:
Wesley Snipes.
Jim:
I’m going not even going to say “Don’t bet on black,”
Steve:
I knew you were going to say that. Because he is the notorious tax protester. Who doesn’t protest any longer. Now he is paying his taxes. Because he spent three years in the
Jim:
Joint
Steve:
That is correct.
Jim:
It was an easy joint. But it was still the joint.
Steve:
Here is another one. Have unreported foreign accounts. It used to be..
Jim:
If it is unreported, How would they know?
Steve:
Well, because you don’t report it. Now days the foreign bank or foreign financial institution are reporting it. It use to be you could put money in a Swiss bank account and they would keep their mouth shut.
Jim:
Really?
Steve:
They don’t keep their mouth shut any more. Now, they report all Americans who have an account with them , they report to the IRS. So, if they report to the IRS, and you don’t. You are going to get audited. Because they are going to find out what’s going on, and they want to know why that money is being hidden and they are not getting their end. The penalty for this now is extreme. In some cases it is 70%.
Jim:
It is 110% – you owe us 10% more then what was there.
Steve:
You are being a little facetious. But not too much.
Jim:
No, I’m not.
Steve:
Another one is. Don’t report some income. So, if you are doing 1099 work and report some and not others. Again, this is all reported to the IRS. The IRS several years ago started requiring that if you pay anyone more than $600, I have to send them a 1099. So, the IRS knows that you have been paid. And if you don’t put it down, the IRS will know you didn’t put it down. And then they will look at your return. Because they will say “wait a minute, it’s not all here. You aren’t telling us about this income.” Then they will think there is other things and they will take a look at your deductions.
You know. The whole thing is to stay under the radar system.
Jim:
You don’t really have children, do you?
Steve:
You will have to prove it. That’s right. Here is another one. Claim large charitable contributions. You can take charitable contributions, there is nothing wrong with that. But if you do take a lot of them, even though you have given a lot, they are going to contact you by mail and say “send us all the proof.” These numbers are large and if you can prove it, you have all of the documents to prove it. They will allow it. But, generally what will happen is you won’t have all the documents to prove it. So, then they won’t allow it. Now, you just created a problem for yourself, cause they are going to audit the rest of your return also.
Jim:
How many years would they look at.
Steve:
Generally, the IRS has three years that they can go back and look at your return. Unless you under-reported your income by more than 25%, then they have six years to go back and look at your return.
Next one. Take a repeated loss on a home based business. Ok, we have talked about this on this show before about the difference between a hobby and a business. People sometimes start a business or they treat their hobbies as a business and they start making all of these deductions. I think we talked about a professional bowler and took all his bowling material off his taxes. The IRS came back and said “No, No. That’s a hobby. You can’t deduct all of that from your other income.
This is not a hard and fast rule. Although the IRS, the rule the IRS uses they will look at your return if you have taken a loss for 3 of the last 5 years. So, you have to show a profit at least a couple of times before the IRS will accept it as a business, rather than a hobby.
You can go to court and fight it. But, that is very expensive and probably more than what you are trying to deduct.
The ninth and final one is: There is a lot more than these, but these are the ones I thought were the most important. Use an unscrupulous tax preparer.
I have had people – Next week we are going to talk about what bad tax preparers can do to get you in trouble. One of them is, when you use an unscrupulous tax preparer, once the IRS gets wind of it, they are going to audit every one that they have ever done a return for.
Jim:
I can think of one more Steve:
Steve:
What’s one more?
Jim:
If I want to start a conservative C3 non-profit organization. That will put up a red flag. We have a story of one waiting 5 years.
Steve:
Because they are icky. But that is a different thing then filing your tax return. But, I agree with you.
Jim:
I have a story about that. We will talk about that in another segment. I just wanted to bring that up, which is one of the reasons we have the IRS Saga that we go through.
Steve:
That’s right. Next week we are going to talk about tax preparers and what to look for there. If you need a tax preparer, then you should call my office at 312-664-6649, because we prepare tax returns. That is one of the services
Jim:
Weren’t you offering something – a deal?
Steve:
We have what we call the IRS Protection Plan – this is really geared for people who have installment agreements or have been found currently not collectible, or have had an offer in compromise with the IRS. So, even if you had it with someone else, you still should contact us, because you have to stay in compliance. We talk a lot about that on this show – Compliance, Compliance, Compliance. So, give us a call at 312-664-6649, visit us on the web at ChicagoTaxTeam.com.
Jim:
Be right back.