One of the recent hot topics with respect to the IRS audits has to do with auditing S corporations[1] (and those taxed like an S, such an LLC) for not paying their employee/owners “reasonable compensation. According to the IRS “S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee” (IRS.gov, “S Corporation Compensation and Medical Insurance Issues,” 8/31/2013).
strategies-init
How to Audit-Proof Your Tax Return (almost)
Full disclosure here, the IRS does not reveal the exact criteria that it uses to audit a tax return. However, this closely guarded statistic is not so much of a secret anymore. Not surprisingly, the government uses statistics to analyze tax returns and to determine which taxpayers it selects for IRS audits. Shameless self-promotion alert: I have also written a pretty comprehensive list of the factors that the IRS that are known by tax attorneys as “audit red flags.” However, in this post, I want to discuss perhaps the most important factor in avoiding an IRS audit: essentially making it bulletproof from the scrutiny of the IRS.
How to Fight a Wage Levy
Fighting a wage levy involves taking the steps necessary to ensure your assets are protected. However, when there is an outstanding tax liability for which you are responsible and when you do not satisfy the debt, the IRS will pursue action that may involve attaching an interest in your paycheck. With this in mind, a wage levy is a legal seizure of property to satisfy a debt. If you do not pay your taxes, the IRS may seize and sell any type of property belonging to you to satisfy the tax liability.
Circular 230: An Overview
Circular 230[1] is a publication of the U.S. Treasury regulations that include the rules that govern the practice of licensed professionals before the Internal Revenue Service.[2] These rules apply to those qualified and licensed to prepare tax returns and provide legal advice to do certain things within the boundaries of the field, including this San Diego tax attorney. The rules both encourage and prohibit certain conduct. Penalties are assessed when an admitted member is found to be non-compliant. With this in mind, rules of Circular 230 apply to attorneys, certified public accountants, enrolled agents, enrolled actuaries, appraisers, and enrolled retirement plan agents.
IRS Form 1099: Informational Returns – Part One
Information returns are tax documents that businesses are required to file to report certain business transactions. Businesses are required to file these reports to the Internal Revenue Service. The requirement to file information returns is mandated by IRS and related regulations. “Any person, including a corporation, partnership, individual, estate, and trust, who make reportable transactions during the calendar year must file information returns to report those transactions to the IRS” (IRS.gov, “Information Returns by Form,” 8/31/2013). Persons required to file one or more information returns will also be required to furnish statements to their respective recipients (IRS.gov, “Information Returns by Form,” 8/31/2013). Filers with 250 or more recipients must file their returns electronically.
Can I Make Payments to the IRS?
Many people who are not able to pay their tax payments immediately ask the question “Can I make payments to the IRS?” The answer is yes; however, paying your full tax debt will save you the set up fees and reduce or eliminate penalty costs. If you have another source, such as a credit card or loan, you could save money by paying your entire tax bill. If you have no other options, IRS installment agreements are a great way to help you avoid default.
Why the IRS Audits Tax Returns?
The Examination Division of the Internal Revenue Service is responsible for auditing federal tax returns to determine if income, expenses, and credits are reported accurately. Although the IRS accepts most tax returns when filed, there are circumstances that warrant an audit. Within this context, the IRS is motivated to evaluate those areas of a tax return that fail to comply with current policies and provisions. In general, the IRS motivation behind auditing taxpayer returns falls under multiple categories.
IRS Examination
Introduction to IRS Examination
IRS Examination is often likened unto and often referred to as the IRS audit function. Typically, the IRS accepts most federal tax returns when filed. However, there are circumstances in which the IRS examines, or “audits,” to determine if reported income, expenses, and credits have been reported accurately by the taxpayer. When a taxpayer’s return is selected for examination, it is first randomly chosen by computerized screening and then secondly selected by audit by a human reviewer who decided the level of audit that the taxpayer’s return will undergo.
The IRS Small Business Self-Employed Division
Introduction to The IRS Small Business Self-Employed Division
The IRS Small Business Self-Employed Division oversees taxpayers and their issues that fall under one or both of these categories. The IRS Small Business Self Employed Division helps taxpayers meet their tax obligations by administering the Internal Revenue Code and applying tax law with “fairness and integrity,” according to the IRS mission statements. According to the IRS, the taxpayer profiles that fall under the IRS Small Business Self Employed Division include fifty-seven million taxpayers, forty-one million self-employed persons; and “[nine] million small businesses with assets of less than $10 million.” [1] An additional profile includes seven million filers of “employment, excise, and estate and gift returns.” [2] According to the IRS, the strategic priorities of the IRS Small Business/Self-Employed division address three types of tax gaps: