The Internal Revenue Service audits only about 1% of taxpayer returns each year; but the bad news is that a majority of those are small businesses and taxpayers with gross incomes of $150,000 - $500,000.
The IRS still does not have adequate staff to increase the percent of audits even though Congress has increased funding for that purpose each year. Therefore, they target taxpayers who will give them the highest collection return. Major corporations and individuals with incomes in excess of $million do not yield efficient audit returns.It's standard operating procedure for those individuals to retain tax attorneys and accountants for sophisticated avoidance practices. If the IRS challenges their returns they will use billable hours and extra personnel in the conflict, and IRS will not prevail in many of those instances.
The IRS conducted its own survey that revealed that over the last ten years 38% of taxpayers admitted they cheat on their taxes. This is shocking especially when the respondent was told the service was the one conducting the poll. Common sense says if 37% admit cheating a greater percentage of cheaters probably didn't answer truthfully. Those poll respondents must have forgotten the old joke that the difference between evasion and avoidance is 15 years. Internal Revenue Service management was overjoyed with the findings for two reasons. For one, it gave them a visual aid to lobby Congress for more funding. Secondly, since they already know that a majority cheat on their tax obligations they send out forward a simple notification that a return has flagged a problem and request the amount needed to make them happy. The request is always in excess of the amount actually owed by the taxpayer, and is usually quickly remitted to close. Because a majority has fudged, the requested amount is quickly forwarded to close the case. The IRS floods the postal with notices. The not-so-subtle threat letter has become their most efficient tool to collect more revenue.
If your family or business happens to lose in the audit lottery you have one of three choices to address the conflict.The first tactic as a taxpayer who has received an audit notice or conflict concerning their tax return is to pay the amount put forward to settle the issue. Do not just look at the tax year in question. It is easy to forget the service has the right to examine up to five years of past returns. When you go into your private confessional be aware to examine all your sins when you rendered your taxes. Even five years of perfect returns are in question one should address if it is worth the time and effort to pursue the conflict. Families and small business owners are not well-equipped to deal with the challenges presented by the IRS. It is fine to be upset concerning how complex and lousy our tax system has become. The only solution to having a better tax system is to vote in federal officials who are sincere about reform. Don't cheat on your taxes, overpay when threatened with a conflict and concentrate on growing your income.
Second consult your accountant to see their judgment and how to settle the conflict. Their knowledge on how to deal with audits comes from experience in such matters. Having them represents your family or company to the IRS sends a not-so-subliminal message. Accountants as a rule do not engage to defend a taxpayer unless they feel the service will not prevail.
Thirdly the big gun to pull out of the holster in your war is the tax attorney. Their fee to represent you may seem expensive. Tax attorneys who specialize in this field place fear in the heart of the IRS. They understand your foe and are aware of all weaknesses. Having a professional tax attorney is your representative is the equivalent of taking an assault rifle to a knife fight.
Each year where you enjoy membership in the 99% unaudited club should be a cause for celebration. If you are unlucky enough to be one of the chosen few hopefully this information will be of value and relieve some stress on your business and family
Prepare for the worst pray for better!
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From Jim Hudson
http://www.medusasolution.com
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