What are the top reasons for triggering an IRS Audit? -

What are the top reasons for triggering an IRS Audit?

There are few things in life that people look forward to less than filing and paying their taxes. However, one of the few things less enjoyable than paying taxes is becoming the target of an IRS audit. Being involved in an IRS audit is not only anxiety-inducing and time-consuming, but it can lead to significant fines and penalties or it can uncover more serious tax compliance issues. If you are found to owe money to the IRS, significant late fees may also apply that can lead to actions for bank levies, wage garnishments, and other heavy-handed legal tactics.

Robert Hoffman of the Hoffman Tax Law Office is an experienced tax attorney dedicated to helping hard-working individuals resolve their tax compliance issues. This post will identify a number of the common reasons that can trigger an Internal Revenue Service (IRS) audit.

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Why am I being audited?

Before we go any further, it is essential to state that no tax professional can state the exact or likely reason for your audit without first engaging in a full and thorough review of your income, taxes and other financial records. However there are a number of reasons for audits that appear more commonly than others. Some of the top reasons an IRS audit was triggered include:

  • Failure to include a 1099 or reporting additional income – Due to the still difficult economy that has caused many companies to cut back on hours, many people work multiple jobs where they may be considered an independent contractor. If you have both a W2 and multiple 1099s it can be tempting to only report some of your income. It is important to resist the temptation to leave tax returns unfiled and unpaid because the software systems utilized by the IRS are adept at detecting actions of this type.
  • Claiming a deduction for a home office – Home office deductions have obtained a reputation as an oft-abused deduction. Therefore if you claim a home office deduction, be sure that it is legitimate.
  • Making errors on your tax forms – Some people believe that they can simply fudge the numbers on their taxes and have it done within 20 minutes. Such a belief is not only incorrect, but it could lead to significant civil penalties or even a criminal tax investigation. Simply put, the IRS can verify the numbers you provide so accuracy is essential.
  • Claiming excessive charitable or business deductions – The IRS is well-aware of the average charitable deduction for a person with a similar income level to yours. Therefore they can often spot inflated charitable deductions. Additionally the failure to obtain an appraisal for valuable goods, obtain proof of donation, or failing to file Form 8283 for certain cash donations can trigger additional tax consequences. Furthermore taking business deductions where the purchase was not ordinary and necessary can also trigger an audit.
  • Only using round numbers – While nice round numbers in powers of ten are extremely easy to work with, financials with only rounded numbers is nearly a statistical impossibility. In short, using only rounded numbers is likely to attract attention and can trigger an audit.

The foregoing capture only some of the most common reasons an IRS audit may be triggered – there are many others. Working with an experienced tax professional can help you avoid these potential tax compliance dangers.

Audits that are triggered by FATCA or FBAR non-compliance

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An audit may also be triggered if you have received a FATCA letter stating a potential FBAR filing obligation from your foreign financial institution, but you have failed to take action to come into compliance including a failure to file Report of Foreign Bank and Financial Accounts (FBAR). As discussed above in regards to failing to report all income, the IRS is particularly adept at detecting that your numbers do not add up. Furthermore, if you have received a FATCA letter, you are already likely on the IRS’ radar. Penalties for FBAR non-compliance  begin at $10,000 per a violation per a year. If you have 3 accounts with FBAR reporting obligations and failed to report any of them, you may be liable for a minimum of $30,000 in penalties. An experienced tax professional can guide you through the process to come into compliance and may recommend one of the IRS’ voluntary disclosure programs, such as Offshore Voluntary Disclosure Program (OVDP), or another legal strategy.

The Hoffman Tax Law Office is dedicated to helping hard-working individuals correct their US tax mistakes and resolve their tax compliance issues. To discuss your tax issues, contact Robert Hoffman by calling (800) 897-3915 or contact him online.

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