Taxworks, Inc. specializes in taxpayer representation for Collection and Audit situations. Whenever a taxpayer interfaces with the Internal Revenue Service for Collection or Audit purposes the taxpayer is confronted with a new set of regulations and procedures that most taxpayers never encounter. It is essential for the taxpayer to be represented in these situations by competent counsel, a qualified taxpayer representation consultant. Enrolled Agents, Certified Public Accountants, and Attorneys are the only professionals designated by the U. S. Department of Treasury to manage situations requiring taxpayer representation before the IRS. Of these three designees only Enrolled Agents are directly licensed by the Department of Treasury. Enrolled Agents are specially trained to act as consultants in Collection and Audit matters.
Audit or "Examination" as it is commonly referred to is the process of reviewing the source documents or taxpayer records from which the information that is reported on the income tax return is derived. IRS personnel who examine tax returns are referred to as Revenue Agents. Generally the Audit Notice will ask to review specific entries on the tax return. The taxpayer is only obligated to provide documentation of the items listed in the Audit Notice. Often these entries are those that the IRS cannot document from other sources such as W-2 or 1009 Forms. Commonly requested information would be expenses claimed on Schedule C Profit or Loss from Business. Travel and Entertainment Expense, Advertising and Auto Expenses are common areas where taxpayers overstate their expenses and where the IRS wants to see documentation. Another area of recent interest to IRS is the cost basis of securities when reported sold. It is the taxpayer's responsibility to document what was paid for the securities and when they were purchased. If the audit reveals a pattern of undocumented and/or excessive deductions or understatement of income, the IRS examiner can expand the audit to additional areas of the tax return or to additional years. This generally requires approval of the examiner's manager.
Generally all deductions should be documented with receipts, cancelled checks, or credit card statements. Absent this type of documentation, there are other methods of demonstrating valid expenses. A competent taxpayer representation specialist can utilize these alternative methods when solid documentation is not available. Much audit activity is conducted these days by mail. A CP 2000 Letter is often issued by IRS requesting that the taxpayer provide documentation for a certain entry or entries on the tax return. This same letter assumes that the taxpayer cannot or will not be able to provide the requested information and therefore calculates the additional tax, penalty and interest due to IRS. The taxpayer can either prove the tax return entry or pay the bill. IRS letters or notices should never be ignored regardless of how ridiculous they appear. IRS personnel take their job very seriously, as does your taxpayer representation consultant. Even though many of the IRS requests for information appear to be foolish, naïve or obvious they should never be ignored.