To better or more fully understand about tax audits, one should first understand the meaning of an “Audit”.  An Audit is an official review or examination of your accounts or books by an independent body.

A tax audit is a type of audit by the IRS which they review and examine a tax return closely to verify the accuracy of income, deductions, and taxes on the return.  It is a detailed inspection, especially of any out of ordinary items listed on the tax return.  The idea behind a tax audit is to ensure reporting of accurate accounting information (Income, Taxes, Gain, Loss etc.) in adherence to the tax laws.

Once selected for an audit, the IRS will request that the taxpayer furnishes additional documentation or information to validate items in question on the return. The IRS can request proof or explanation through mail, office visit or field visit.  Generally, there are three types of tax audits:

Mail audits are the simplest type of audits and do not require any meeting with the auditor. The IRS requests proof to validate the taxpayer’s claim or position taken with respect to an item on the tax return. Submitting the requested proof via mail should conclude the audit.

Office audits are conducted at the IRS office, which involves some questioning by an audit officer. This is relatively a more in-depth audit, and office audits require that the taxpayer brings specific tax return information to the meeting. A taxpayer has the right to bring a lawyer to represent him.

Field audits are comprehensive, and the broadest type of examination conducted by an IRS agent. Like the name suggests, these are conducted at the taxpayer’s home, office or accountant’s office. In general, these are conducted when there are many items on the tax return that are questionable.

Did you or your business receive a letter from the IRS? Please do not ignore any communication from IRS, it is very crucial to report back in a timely manner. You can reach out to our office for a free evaluation at (201) 620-1482 or click here to schedule a free case evaluation today!

The possibility of the IRS examining your tax returns generally depends on income level and filing type.  The more complex your tax returns, the higher the chances of facing an audit. The more basic the tax return, the lower the chance of scrutiny.

Generally speaking, most returns are randomly selected for audit.  That being said, if your tax return has unusual deductions or omissions, IRS may warrant further examination by the tax authority.

Your chances of hearing from the IRS escalate when you claim unusual tax breaks, huge losses, or, most importantly, foreign assets.

For example, independent contractors receive Form 1099 MISC for their services when they are paid more than $600. A copy of this form is also submitted to the IRS. If the income from 1099 MISC does not match with that of the IRS, it may trigger an audit.

To get a clear picture, let’s look at certain statistics released by the IRS for each type of entity.

IRS Audit rates by income level for individuals (2018):

IRS Audit Rates/Statistics by tax filing type (2018)

Further, estate returns often have very good returns for the IRS.  The IRS audits 100% of estates over $10M, 58% $5M-$10M and 14% under $5M.

The odds of being audited have decreased significantly over the last few years. The reasons include:

• Decline in the IRS’ budget
• Reduction in the IRS’ workforce
• Increase in the IRS’ workload

According to the IRS Oversight Board, the IRS does not have the resources  pursue at least $30 billion worth of incorrectly reported or unpaid taxes. The nation’s “tax gap”—that is the difference between what taxpayers actually owe and what they voluntarily pay—was most recently estimated at $458 billion.

Did you or your business receive a letter from the IRS? Please do not ignore any communication from IRS, it is very crucial to report back in a timely manner. You can reach out to our office for a free evaluation at (201) 620-1482 or click here to schedule a free case evaluation today!

The Internal Revenue Services (IRS) is well aware that tax rules can be very complicated. It is easy to make a mistake and file a faulty tax return, resulting in additional taxes due and severe penalties.  Thus, there is a rule in place to relieve these penalties called the First Time Tax Penalties Abatement (FTA).

FTA relief may be applied, at the IRS’s discretion, to failure-to-file (FTF) and failure-to-pay (FTP) penalties. Businesses may also qualify for relief from failure-to-deposit (FTD) penalties.

Generally, the taxpayer must have a clean record for the three prior tax years to receive the FTA. Any penalty in the three prior years may hinder the eligibility to apply for the abatement, except with respect to the estimated tax penalty.

If you owe any kind of a federal tax penalty, please reach out to our office to find out if you may be eligible for First Time Tax Penalties Abatement (FTA).  You can reach our office at (201) 620-1482 or click here to schedule a free case evaluation today!

Tax planning is crucial for the growth of any business. Decisions should be based on existing law and IRS guidance to minimize the risk of filing a faulty return. Unfortunately, there are many situations where a business faces a unique transaction or situation, but there is nothing specifically covering how it should be treated for tax purposes. To address this issue, tax professionals may submit questions to the IRS about how to treat new or unique situations. The IRS’s response is known as a private letter ruling, which applies only to that specific taxpayer. The taxpayer may rely on the ruling when preparing a tax return knowing that the tax treatment will be accepted by the IRS.

Is your business facing a situation for which there appears to be no IRS guidance? Reach out to a tax professional who can determine whether your particular situation is unique and, if necessary, request a private letter ruling. You can reach our office at (201) 620-1482 or click here to schedule a free case evaluation today!

Every taxpayer dreads the words ‘IRS audit’.  As a taxpayer, you file your tax returns on time, but fear the possibility of being audited. We hear stories of people being audited and how stressful it can be.

Fortunately, over the past few years, IRS audits have been declining.  Also, a huge number of audits are done by mail, which are less intrusive in comparison to office or field audits.  Although the numbers have been declining, one must be aware of certain protocols to smoothen the audit process.

If you have been selected for an audit, below are some points you might consider for a successful audit:

1. Do not ignore an audit– You have been chosen for audit for a reason and ignoring any notice for audit will only call for additional scrutiny. Take your time to respond but do it within the deadline.
2. Read the notice carefully– the audit notice has a set of instructions on what action needs to be taken by the taxpayer. The specific area being audited is mentioned in the notice which will help you determine what information to keep ready.
3. Be systematic– In an audit, specifically in an office or field audit, you will be required to furnish documents related to the area of audit. Organizing your documents makes the auditor’s job easier and can definitely win you some points. If the IRS has requested specific documents, make sure you have them.
4. Do not carry unnecessary documents– Focus only on the information required in the audit notice. There is no need to bring in additional information. We do not want to trigger the auditor’s curiosity into other areas of the tax return.
5. Do not submit originals– As a part of audit, you may be required to submit documents to the IRS officer. Give copies of the documents and not the originals. In case you submit the originals and they are misplaced by the IRS, you will lose this information since IRS will not be held responsible for it.
6. Give only relevant information- The auditors are skilled to obtain substantial information from the taxpayer in what may seem a simple discussion. Always stay on point and keep your answers brief. Offering or giving away unnecessary information may give the auditor a reason to expand the scope of the audit.
7. Be polite and respectful– You want the auditor to be willing to see things in your light. Being aggressive or argumentative will only lead to contrary behaviour. Be courteous, polite and respectful.
8. Lying will get you in trouble – Lying to an IRS office is a crime. As a taxpayer, you should be able to substantiate your tax return position. If not, you need to prepare yourself for a tough audit battle.
9. Meet the deadlines- The audit will not go on forever. There are deadlines to respond, to provide information and to petition your case. Avoid hurdles by meeting the deadlines.
10. Know your rights – As a taxpayer being audited, you should be aware of your rights. You may disagree with the auditor at the initial level and may want to escalate your case to the higher authority, which is the IRS Appeals division.

After the audit is over, keep the records for minimum 6 years, and more if required.

I always tell my clients that an audit is an education and learning event.  It is an opportunity that helps you to learn about your record keeping and how to improve them.  Remember, auditors are people too, who also have jobs to perform.  Always be respectful.

Did you or your business receive a letter from the IRS? Please do not ignore any communication from IRS, it is very crucial to report back in a timely manner. You can reach out to our office for a free evaluation at (201) 620-1482 or click here to schedule a free case evaluation today!

I have never filed a federal return. Should I tell the IRS or wait until they contact me?

Not everyone needs to file a federal tax return and the IRS may not contact you for failing to file if it believes you were not required to do so. There are several reasons the IRS may not think you are required to file a return, but these are the most common:

• You did not meet the filing requirements.
• You did not owe enough taxes
• There is an error in the IRS system.
• Your employer did not properly report to the IRS.

However, if you have failed to pay your taxes when you should have, it is essential to know that there is no statute of limitations for unfiled tax returns. That means the IRS can demand payment of any unpaid taxes at any time, along with penalties and interest. Not filing can also limit your ability to claim a refund for example if your paycheck withholdings were larger than necessary.

If you should have filed returns, but have not, there is a good chance the IRS will eventually find you. The IRS has access to information about many of your financial accounts and is constantly improving its ability to find unreported income. If you think the IRS might target you for unreported income, do not wait until they contact you, contact a tax professional to minimize your tax liabilities. At Arora Law PC, we can help with your unfiled returns.  You can reach out to our office for a free evaluation at (201) 620-1482 or click here to schedule a free case evaluation today!

Audit reconsideration is a tool that allow taxpayer to request IRS to reconsiderthe audit outcome.  Audit outcome could be based on assessed audit and tax returned prepared by IRS because taxpayer failed to file it.  A taxpayer request Audit Reconsideration if following applies:

1. Taxpayer did not receive the proper audit letter or notification from IRS.
2. Taxpayer did not participate or appear during the audit.
3. Taxpayer has new evidence and supporting documents
4. Taxpayer denied for an eligible tax credit.
5. Tax assessment amount is incorrect

Audit reconsideration is a helpful tool that could help to lower your tax bill.  It is important to timely file the Audit Reconsideration request.  At Arora Law PC, we can help with Audit Reconsideration request.  You can reach out to our office for a free evaluation at (201) 620-1482 or click here to schedule a free case evaluation today!

 What is an offer in compromise?

An offer in compromise (OIC) is an arrangement with the IRS that allows taxpayers to pay off their unpaid tax obligations for less than the total due.  In many ways, it is similar to settling your debt with a credit card company for less than you owe.

While the IRS often accepts OICs, not everyone is eligible to participate in the program. The IRS will weigh several factors, such as the taxpayer’s ability to pay, income, and assets. If the IRS accepts your OIC, you can either pay a lump sum or set up a payment plan.

At Arora Law PC, we can help determine your eligibility for an OIC and help you submit an offer with an installment plan. Do not delay and schedule your free consultation to see if you qualify for an offer in compromise.

CNC status provides temporary relief from IRS collection activities.

Currently not collectible (CNC) status is a great tool for taxpayers because it temporarily stops the IRS Collection Division from placing levies on bank accounts, garnishing salaries, or seizing property. If you qualify, CNC status can be extremely helpful to taxpayers is going through hardship. This temporary status will allow the taxpayer to get on their feet while not worrying about IRS tax collection. However, penalties and interest continue to accrue while the taxpayer benefits from their CNC status.

To get CNC status, taxpayers must prove they are going through financial difficulty and can’t afford to pay the taxes they owe. Prior to allowing taxpayers to claim CNC status, the IRS will require information related to their income, expense, assets, and liabilities along with supporting documents.

Most taxpayers seek CNC status by completing an IRS form 433A or 433F. Once all the necessary documents have been compiled, the taxpayer can contact the IRS by phone or mail to seek relief. If a taxpayer is approved for CNC status, the IRS keeps a close eye on the taxpayer’s financial situation, and if it improves, IRS may remove the CNC status.

It is crucial that a taxpayer files a request for CNC status in a proper and timely manner. This is especially true if the IRS is in the process of garnishing your wages, filing a lien, or placing a bank levy.  To find out your eligibility, you can contact  at Arora Law PC today to discuss your options.  Please call at (201) 620-1482 or click here to schedule an appointment.

 You can lose your passport over unpaid taxes.

 Many seriously delinquent taxpayers are surprised to discover that their passports may be revoked, or they may be denied to obtain a new one.

Under a provision in the Fixing America’s Surface Transportation Act (FAST), the IRS may report a taxpayer’s seriously delinquent status to the State Department, which can either revoke an existing passport or deny them a new one. That essentially prevents them from traveling internationally. Before notifying the State Department, the IRS will send a taxpayer a Letter 6152. After the State Department has been notified of a seriously delinquent tax debt, the taxpayer is issued a Notice CP508C.

If you have received a Notice CP508C or a Letter 6152 from the IRS, it is critical that you respond in a timely manner. You should also consult with a tax attorney who will inform you of your options. You can reach out to the tax professionals at Arora Law PC today for a free case evaluation at (201) 620-1482 or click here to schedule a meeting.

 Should I seek an installment agreement from the IRS?

 As the name suggests, an IRS installment agreement allows taxpayers to pay the taxes due in smaller monthly installments with a reduced penalty. The arrangement is flexible, and a taxpayer can make more than the minimum payment due, or even pay the entire amount, without worrying about an early payment penalty.

If filed properly, a payment agreement with the IRS may stop the agency from filing a federal tax lien against your property. However, it does not stop the statute of limitations from running. The IRS generally has a 10-years period to collect taxes due. While the taxpayer is paying under an installment agreement, the 10-year clock keeps running, and at the end of that period, the IRS may no longer be able to collect any unpaid balance.

On the other hand, payments under an installment agreement are subject to up to 12% interest and the filing cost could go up to $225.

The IRS offers several different types of installment agreements. The most common is the Guaranteed Installment Agreement. Under 26 U.S. Code § 6159 (c), the IRS is required to accept a taxpayer request to enter into installment agreements if the following conditions are met:

• The aggregate tax liability is $10,000 or less, excluding penalties and interest.
• In the preceding five years:
  • the taxpayer properly filed tax returns or paid taxes.
  • the taxpayer did not enter into another installment agreement.
• The taxpayer is unable to pay when due (however, the IRS usually does not require this).
• The full amount will be paid within three years.
• The taxpayer complies with filling any payment obligations during the time of installment agreements.

IRS also offers streamlined, non-streamlined, in-businesstrust, and partial payment installment agreements. There are different qualifications and requirements for each installment plan. Learn more about installment agreements at https://www.irs.gov/irm/part5/irm_05-014-005#idm139651645412720

It is important to talk to a tax professional prior to applying for an installment agreement. If you owe back taxes, starting an installment agreement may make it easier for you to pay. Do not delay because you will continue racking up interest and penalties until an agreement has been reached. You can reach out to our office at (201) 620-1482 or click here to schedule a free case evaluation today!

 What is the difference between an injured and an innocent spouse?

Married couples filing joint returns are allowed to claim higher deductions and several credits not available to individual filers. However, those benefits come at a price. Filing a joint return means that each spouse is jointly and severally liable for the other spouse’s taxes or other government debts like child support and student loans.

As a result, if one spouse failed to pay the tax due, or lied on the return, the other spouse could be held liable for the entire amount due. To protect a spouse injured in this unfair situation, the IRS provides innocent and injured spouse relief.

Innocent spouse relief mayrelieve a taxpayer of the burden of paying the couple’s unpaid tax bill.  He or she needs to show no involvement in any wrongdoing and that he or she was unaware of the actions of the other spouse.

Injured spouse relief generally apply in situations where one spouse owes a debt that affects the other spouse’s refund when they have filed a joint tax return.

If you believe you are being held liable for a jointly filed tax return as the result of the wrongdoing of a spouse, you must speak to a tax professional as soon as possible. The IRS does not like to grant relief to innocent spouses and will often fight claims for relief based on the fact both spouses signed the return. If you think you may be eligible for innocent or injured spouse relief, please contact Arora Law PC today to make sure you present the best care possible to the IRS.