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Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

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I would like to thank you for your time in helping me with this issue of tackling the exclusion of my 1099-C income from this years taxes. The Form 982 that the IRS makes you file is very confusing and makes you want to beat you into submission however with your guidance I was able to quickly and easily get through it and on top of that exclude 100% of the cancellation. I will suggest your site and assistance to anyone and everyone.


Keith, CPA from CT


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Even though Gary enjoys helping colleagues, we no longer provide free consults to other tax preparers. He's happy to consult on an hourly billing basis if our schedule allows.

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IRS Tax Audit CPA accountant gives IRS Audit Prevention Tips | IRS red flags

tax audit CPA Wilmington NC

Gary Bode, CPA: you can decrease the chance of an IRS audit. For a free phone consult, please call 399-2705.

Tax audit CPAs accountants try to avoid IRS audits during tax return preparation. Remember, tax audits can’t always be avoided. The IRS randomly audits about 1% of all tax returns, to help set up statistical baselines for internal benchmarking. Your tax audit could just be (bad) luck of the draw. But I’ll offer some insight about IRS red flags and tax audit prevention.

Tax Audit Tip 1: explain unusual items on your 2014 IRS tax returns

The IRS uses statistical analysis to red flag returns that fall outside normal limits. They compare your current tax return against your earlier tax returns. But they also compare you other taxpayers, say by neighborhood, income level, employer, etc. When tax audit CPAs think something might trigger a red flag on your return, we get the facts and then explain it to the IRS with supplemental documentation. Sometimes identifying red flags is part experience and part common sense.

Here’s a simple example of an unusual item being an IRS red flag.

Let’s say you make $30,000 a year, and on the past five tax returns you’ve never itemized deductions. Why? The IRS standard deduction always exceeded your itemized deductions on Schedule A. But this year, you donated $200, each to 100 different charities for a total of $20,000, all funded by gifts to you in 2014 from your sweet Uncle Max and Aunt Helen. Both your Aunt and Uncle can give you $14,000 each in 2014 without immediate tax consequences to them or you.

The $20,000 of charitable deductions is/are a legitimate deduction and you should take it. Now, you could just list this as a lump sum on Schedule A, Itemized Deductions. The IRS only requires proof of cash donations to a charity when they’re over $250 each, so technically you wouldn’t have to keep records. But these donations would probably trigger an audit because:

  • 67% of gross income donated to charities is high at any income level.
  • They are inconsistent with your activity in earlier tax years.
  • The IRS automated systems at good at catching large fluctuations on Schedule A, Itemized Deductions.

But what tax audit CPAs would do is:

  • List each charity by name and amount given.
  • Provide an explanation that the donations were funded by a familial gift.
  • Explain the gift was from two separate people, and that each gift fell below the 2014 annual gift limit of $14,000.

Prudence dictates keeping all the cancelled checks with a copy of your tax return for at least three years. If the above proactive measures didn’t head off an IRS tax audit, you’d still be bulletproof. Tax audit CPAs are proactive, but always have documentation as a second line of defense.

Tax Audit Tip 2: include all information on your 2014 tax return

We all get a plethora of tax forms by mail containing information that has to be included on the 2014 tax return, from employers, banks, mortgage companies, student loan administrators, colleges, brokerage houses, healthcare savings accounts, retirement plans, state unemployment agencies, state income tax refunds, etc. What do they all have in common? The IRS also gets a copy. Welcome to the IRS revenue matching program. Leaving off any information from these tax forms usually triggers a tax audit. It may also open other areas of your return to scrutiny.

We always compare last year’s return to this year’s return to look for errors of omission. Usually through our tax organizer, which asks for information used during tax preparation and inquires about new issues that may have arisen.

Tax Audit Tip 3: don’t make math errors

If you opt for self tax preparation, use a tax program. Check your data entry twice. In recent years the IRS merely corrects math errors for you and sends an automated IRS Notice. But it stands to reason the rest of your 2014 gets a closer look.

Tax Audit Tip 4: don’t send a hand written tax return

I think most tax audit CPAs agree that a hand prepared 2014 tax return gets special IRS attention. The IRS probably has to manually enter your tax data into the IRS systems.

Tax Audit Tip 5: report all your income

The IRS believes over 200 Billion dollars of income goes unreported on tax returns. Mostly through cash transactions. While the IRS is under-staffed and can’t audit all tax returns, they’re not stupid. They pull in all kinds of information from off shore banks, tax returns from people linked to you, statistical data about where you live, casinos, partnerships, brokerage firms, banks, credit card transactions, etc. Their infamous “lifestyle” tax audits impute your income from the way you live. You don’t have to be a tax audit CPA to read stories about celebrities pulling jail time for tax fraud.

Tax Audit Tip 6: use a professional preparer if 2014 is an unusual tax year for you

We’re not talking Liberty Tax Service, Zip Zap, H&R Block, or Jackson Hewitt where the tax preparers are not expert and have to rely on the software. We’re talking CPAs, Enrolled Agents, and Tax Attorneys. For example, I deal with cancelled debt, IRS Form 1099-C, Cancellation of Debt, Form 982, Reduction of Tax Attributes, etc. This can be from rental real estate short sales, car repossessions, cancelled student loan etc. Cancelled debt is notoriously complex. It might pay to have a cancelled debt CPA prepare the 2014 tax return if you receive a Form 1099-C.

I’ve never said it, but many Clients believe a CPA prepared tax return gets less IRS attention. But I will say that IRS agents are often relieved to have a tax audit CPA to deal with.

Tax Audit Tip 7: be honest

Having a tax audit CPA work all the legitimate tax angles is better than making up expenses or not reporting income. We see folks who just enjoy the thrill of sneaking one past the IRS and then worry about a tax audit every day when the mail arrives.

Tax Audit Tip 8: don’t berate the IRS or IRS employees

I’ve only had a few bad IRS interactions. While the IRS is cumbersome the vast majority of URS employees are professionals. They see your tax issues day in and day out. They just want to see 5 PM like most of us. Trust me, it never pays to poke the bear.

We’re a tax audit CPA accounting firm with a virtual office to serve long distance clients. Of course, we try to head off tax audits during tax preparation. But, if you are audited, we’re there to represent you. For a free phone consult, call (910) 399-2705.

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