Posted on 07/21/2009 7:52:54 PM PDT by ROTB
The IRS generally doesn’t go after you criminally unless you do something to piss them off (like join an anti-tax group) or you are a celebrity and they want to make an example out of you (like Richard Hatch).
If you refuse to pay they will put liens on your property or paycheck. Generally the IRS just wants the money. They can’t get it from you if you are in jail.
If they used a CPA to do their taxes, they are home more or less free. A tax preparer who signs off on the 1040, as does the person (or couple) being audited, can and should be the only person to attend the audit. The preparer should bring in only information pertinent to the tax year in question, as well as a specific power of attorney for that year. The person (or couple) most definitely should NOT attend the audit, letting the tax preparer handle the dirty work.
If they were dumb enough to prepare their own returns, they will have to attend and handle the details themselves (which is why it's a darn good idea to have a professional CPA do your taxes, the fee is deductible next year and having them represent you by proxy in an audit situation relieves you of a lot of stress and potential expense). As such you should not bring in every piece of paper and returns other then the year in question. You should also refrain from babbling away about "background information", rather keep the answers short and on topic with a minimum of nervous chatter.
Keep the thought in mind that you are going to wind up paying something and try not to make it worse then what it has to be by arguing with the examiner. You will also probably get nicked for interest as well. You can generally arrange to spread the additional payments over an extended period at the cost of more interest so you won't have to come up with a large chunk immediately.
Good luck and if you aren't doing it yet go to a CPA from here on out as once you've been audited, they will be looking at you for probably the next two tax years. If they can't find anything after three audits they are not allowed to keep digging.
Regards,
GtG
PS I got audited three years running and they never found anything out of line, that's why you go to a pro. My tax guy is a retired IRS auditor and he's worth a lot more then what he charges. H&R Block doesn't even come close, find someone that actually knows what he (or she) is doing.
Whatever they are shown gives them license to investigate further.
For example, if they ask for a utility bill from a certain month and it can’t be found, and instead a bank statement is shown that lists the utility bill was paid, then they have license to go through all of your bank records. From your bank records if they suspect income was received that wasn’t reported then they add that as a charge or as a point they are investigating. So one thing can lead to another.
So whatever they are shown needs to stop them from looking further.
Same with credit card purchases and payments. If a bank card is used say at Home Depot and the last 4 digits of the card are printed on the receipt, that gives them license to audit the credit card or bank records.
Again one thing leads to another.
If your friends don’t have a receipt, then tell the IRS a receipt can’t be found. Then they will have to issue a summons for the record to the company that sold the goods or services.
If they take a long time, that is a good thing. Then your friends can contact the revenue officer (not the auditor) and offer a compromise. In other words negotiate a payment with them and be done with it.
Another thing is they are only allowed to audit the past three years. So if they auditing 2008, they can ask for 2006 and 2007. Do not show them any records or filings from 2005 and before, because that gives them license to audit further back.
As others have pointed out, if it is a criminal investigation then one would not likely know it is, but there are no restrictions on what can be looked at in a criminal case (at least I don’t think there are restrictions).
One will not get any sympathy points from them by appearing cooperative. They don’t care but they can escalate the investigation/audit if one appears uncooperative. So the kicker is to appear to be compliant but at the sametime not giving them license to continue into all other kinds of areas that they were not originally targeting.
Tax accountant experienced in dealing with IRS. Let them handle the audit. You don’t need an attorney....yet.
Tell him to watch this youtube video. There is a part where the guy talks about a former student wanting to be questioned by the IRS. I strongly suggest your friend follow the advice given.
http://www.youtube.com/watch?v=i8z7NC5sgik&feature=PlayList&p=4B62CC6AFE12BBE7&index=0&playnext=1
Make a deal: Turn in your boss. He can’t retaliate from prison.
How long have been working for the IRS?
I messed with them a few years ago and got stomped bad. Was self employed, didn’t file a tax return for a few years, lost my contract and decided to live off of my “tax fund” instead of applying for social services.
There were quite patient with me in the beginning, but when they realized that I didn’t feel that I owed them the money, the amount I owed doubled quickly due to fines and penalties. They started filing liens on my property over one missed (thier fault, they didn’t record it properly) payment. Took me 5 years to get them off my back. I will honestly never screw with them again.
#2
Don’t go with your accountant to an audit. IRS has games to draw you in to small talk.
I don't know what that means exactly, but "lawyer up" with an experienced attorney would be my advice, followed by hiring an experienced tax accountant to meticulously go through the returns so that he (your friend) can know where he went wrong and how much he may owe.
ROTB is asking about the IRS, not the IRA.
My experience contradicts yours (but not recently, so policy might have changed). In any case, no need to discuss anything over that phone since it's not binding (on THEIR part).
I’m a slave to the state taxpayer if that’s what you mean.
What you describe indicates there may be something criminal that the IRS is considering-even if there is none you have to initially act as if there might be until you know otherwise.
First, absolutely do not discuss anything with the agents. Get representation.
Second, hire the lawyer.
Third, have the lawyer hire the accountant using a Kovel letter.
Fourth, and most important. These two are no longer “friends”. Each is a potential witness against the other. They must not discuss this matter further.
Not true. They may be looking for a witness to get the boss. They have two potential witnesses. The boss may have represented that he merely did what these two guys told them to do.
The IRS can threaten that they were assisting in willfully making a false return (100k and prison). The IRS then goes after both employees (the more the merrier) and they accurately report (full transparency and a feeling they did nothing wrong-it was all the boss) that they willfully helped the boss in his fraud thinking they were transferring the burden back to the boss. Now the IRS has all three. Alternatively, one of these employees gets a lawyer and the lawyer obtains immunity before talking then the other two go to jail.
It may be nothing, but I want my clients to be fully prepared for the worst case scenario. I am a CPA with over 30 years experience. After hearing these initial facts I would stop the interview, call a criminal attorney with Federal experience and refer the client to them. I would then have the attorney hire me to do any leg work.
If it turns out it is merely a routine audit of related parties then most of the retainer for the attorney would be refunded. If it turns out there was something criminal in mind then my client has not incriminated himself and my client had the best chance of getting a deal. Once my client turns over any information without a deal in a criminal matter, the attorney has less or maybe nothing to negotiate with.
My late Dad who was audited alot used to make the guys come to our house, sit them in an exceedinly uncomfortable chair, make himself a bourben and branchwater and talk non stop telling stories, he was a great raconteur. He never offered them a drink, refused to let them use the bathroom saying it was out of order, drank his bourben, refilled it and had Mom keep the tv on in the next room blaring. He never paid a penalty, never had to make payments and the agents left usually after three hours. He didn’t organize anything and when they requested something would wander about the room searching through piles of recepts and interrupting only to refresh his bourben. He was a CPA himself and was amazingly good at his game.
Took the CPA exam myself, dated an IRS agent once for a while she was one of the nicest people you ever hope to meet. I almost married her! I think she was near the top of the Knoxville Tennessee office when she retire.
I didn’t write that, I don’t know why you included me in on that.
Courtesy.
I’ve been audited twice. Once I owed them about $800 and once they owed me about $1000.
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