Articles Posted in IRS Audit Reconsideration

Tax relief experts have a job pretty similar in nature to specialists of any other field. For example, if you are traveling on the road and suddenly your car breaks down due to a mechanical fault, you cannot fix it without the service of an expert mechanic, unless you possess such proficiencies. Likewise, when your IRS taxes get out of control due to financial problems, carelessness or any other reason, you need the help of a tax relief expert to carry on with your smoother journey of life. But there are many so-called experts you need to beware of, who are there only to take your money. Let us try to expose these scammers!

The American economic system relies heavily on the taxation system and this is why the IRS handles the individuals vehemently who try to evade taxes. However, in current cloudy financial circumstances paying taxes is not an easy job. If you have become a tax defaulter, need not worry because there are several legal ways out.

If you try to solve your IRS tax problems without the technical know-how expertise, it is just like trying to fix your broken car without the help of a mechanic and you will end up nowhere. If you do not want to waste your time and money, contact a reliable tax relief expert, as soon as you realize the tax problem. Procrastination will result in nothing but penalties and higher interest and you will be paying much more than the actual back taxes owed.

IRS Tax Audits and Examination

The US Internal Revenue Service organizes audits and examinations on tax returns to ensure tax compliance by both individuals and businesses. But because it’s virtually impossible to actually audit and examine every ITR for discrepancies, the audits are mostly randomized so your chances of getting picked for a particular year is just as high as getting overlooked. Many taxpayers manage to survive every tax season without undergoing an IRS tax audit but there are those that are not as lucky.

The audit selection process

What are your chances for being audited? IRS’s 2008 data book provides some clues IR 2009-22

Mike Habib, EA Tax Relief & Tax Problem Resolution

IRS has issued its annual data book, which provides statistical data on its fiscal year (FY) 2008 activities. As this article explains, the data book provides valuable information about how many tax returns IRS examines (audits), and what categories of returns IRS is focusing its resources on, as well as data on other enforcement activities, such as collections.

TIGTA assesses how well IRS Examination function scrutinizes all open tax periods during audits [Audit Report No. 2009-30-034]:

IRS Examination function employees do not always appropriately inspect and examine prior and/or subsequent year tax returns when warranted, the Treasury Inspector General for Tax Administration (TIGTA) said in a new audit.

Auditors reviewed 68 statistical sample cases and found that 13 (or 21%) of the cases warranted scrutiny of additional returns but none were selected for examination. In 26 (or 38%) of the 68 cases, “there was no evidence that examiners inspected either the prior or subsequent year return to identify similar issues to the years under examination or if large, unusual, or questionable items existed that would warrant examination,” the audit said. Factors that might be considered include the comparative size of an expense, if the nature of the item is significant, the beneficial effect of the manner in which an item is reported, and missing items on the return.

Seventh Circuit classifies computer programmer as an independent contractor

Suskovich v. Anthem Health Plans of Virginia, Inc., (CA 7 1/22/2009) 103 AFTR 2d ¶2009-385

The Court of Appeals for the Seventh Circuit, affirming a district court, has concluded that a computer programmer was an independent contractor and not an employee.

Capital contributions did not restore or increase shareholders’ tax bases in loans to S corporations Nathel, (2008) 131 TC No. 17

Mike Habib, EA

The Tax Court has held that taxpayers’ capital contributions to S corporations did not constitute income to the S corporations and that the contributions did not restore or increase their tax bases in their loans to the S corporations.

Like many of us, you’ve probably dreamed of turning a hobby or avocation into a regular business. You won’t have any unusual tax headaches if your new business is profitable. However, if the new enterprise consistently generates losses (deductions exceed income), IRS may step in and say it’s a hobby–an activity not engaged in for profit–rather than a business.

What are the practical consequences? Under the so-called hobby loss rules, you’ll be able to claim those deductions that are available whether or not the enterprise is engaged in for profit (such as state and local property taxes). However, your deductions for business-type expenses (such as rent or advertising) will be limited to the excess of your gross income from the hobby over those expenses that are deductible whether or not the enterprise is engaged in for profit. Deductible hobby expenses are claimed on Schedule A of Form 1040 as miscellaneous itemized deductions subject to a 2%-of-AGI “floor.” By contrast, if the new enterprise isn’t affected by the hobby loss rules, all otherwise allowable expenses would be deductible on Schedule C, even if they exceeded income from the enterprise.

There are two ways to avoid the hobby loss rules. The first way is to show a profit in at least three out of five consecutive years (two out of seven years for breeding, training, showing, or racing horses). The second way is to run the venture in such a way as to show that you intend to turn it into a profit-maker, rather than operate it as a mere hobby. The IRS regs themselves say that the hobby loss rules won’t apply if the facts and circumstances show that you have a profit-making objective.

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