Let’s face it… everybody has a fear of being called out for a tax audit. Even the squeaky-cleanest taxpayer has this fear embedded somewhere in their brain, and for good reason! One of the most intimate facets of our lives is our finances. Everything surrounds that one major component of our lives: the means to keep a roof over our heads, the ability to put food on our table, to clothe our bodies, and to care for our dependents. If you are a business owner, it expands to also ensuring you pay your staff and contractors, can afford to buy the supplies needed to follow through with your commitments to clients and cover the insurance and taxes that continue to increase every quarter. To have the IRS send you a letter advising they are going to look at your finances through the lens of a microscope is downright uncomfortable! However, as with everything in the tax world, I would advise you not to panic. Let me explain why…

First, set aside the initial fear of what an audit means to you based on the horror stories you have heard from the news, social media, or your cousin’s best friend’s uncle's tale of woe. Have you ever played the childhood game called “Telephone”? Tax debt tales can grow with each retelling, just like a simple sentence in that game. If it’s not coming directly from the source that experienced it, chalk it up to an embellished tale that allows someone to puff up their chest over a beer at the neighborhood drinking hole.

There are a few different reasons the IRS typically flags a tax return for audit:

• You failed to file your return – this is a no-brainer reason. Typically, this type of examination of your tax account happens because income or significant financial events were reported associated with your Social Security Number or Employer Identification Number, yet a return was not filed.
• Your return had errors – again, another no-brainer reason. If you claimed four dependents but only listed two people with SSNs or ITINs, that’s a glaring error that will cause the return to be flagged. If your self-employed income reported on Schedule C reflected gross income of $80,000 and you mistakenly reported $400,000 in COGS instead of $40,000, that’s an error worthy of a flag by the IRS computer system.
• They believe you have underreported your income – Remember that the IRS receives copies of all W-2s, 1099s, and all other financial-related annual documents through the Information Returns Processing System (IRP). The IRS computer system compares the information reported by IRP to the information reported on your tax return. If there is a discrepancy, a notice is sent to you advising what was found and asking for your input.
• Expenses or credits claimed are in question – of the various reasons most audits happen, this is the one that can be the most cumbersome to address. However, you should know your financial situation well enough to identify if you made a simple error or if your claim, as initially reported, is valid.

See? It’s not so scary when you stop your racing heart, take a deep breath, and break it down.

There is another type of tax audit that the IRS initiates, and it is purely a random chance to be chosen for it: the Taxpayer Compliance Measurement Program. This audit program sets the “standards” for income, expenses, deductions, etc., for the common taxpayer. It can be extremely time-consuming as all factors reported on the chosen tax returns must be substantiated with documentation, but the IRS only chooses about 50,000 taxpayers per year for this type of audit. Given that the IRS processed over 160,000,000 returns for tax year 2022, your chances of being selected for this program are infinitesimal. However, I do want you to be aware that it exists on the off chance your number comes up.

If you or your client are notified of an audit, the cost-benefit of involving a tax professional should be the first concern. Review the notice received and assess what is being challenged. The taxpayer should not pay for representation if it can be addressed with a few receipts or documents and a letter. If, however, there are several areas of concern expressed and the potential for a significant tax consequence exists, get an experienced tax professional involved! It may cost you ten or twenty hours of professional fees, but it could save you ten or twenty times that on a tax bill.

At Golden Lion Tax Solutions, our experienced team always makes a cost-benefit assessment for the taxpayer as our first step. We never want to charge someone retainer fees to handle something they should be able to handle with a little bit of our guidance and a few hours of their time. However, we have had clients come to us with tax audit situations that started with one year for a business that then grew into three years for the company and three years for the owner’s personal tax accounts because of the commingling of corporate funds found.

If you think your tax audit notification is a trigger akin to the opening of Pandora’s Box, reach out to us! It doesn’t matter if it’s a tax audit notification issued by the IRS or state, or if it’s related to income, payroll, worker’s compensation, or sales tax; we have the experience to handle it efficiently, effectively, and to keep you in the loop every step of the way so you don’t lose sleep at night. Remember, there’s ALWAYS a solution!!!

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Trust. Protection. Wisdom.

Your future and your family deserve the right protection. Golden Lion Tax Solutions will be your advisor and confidant throughout the entire journey. We guarantee to offer you or your business best-case solutions for your tax debt. We are by your side every step of the way. Start now and get your life back.

For help with your tax debts, email contactus@goldenliontaxsolutions.com or call 833-LION-TAX (833-546-6829)

Disclaimer: There are requirements that must be satisfied in order to qualify for some of the tax solutions we discuss on our website. Not all of our services will be suitable for every client. Golden Lion Tax Solutions is here to help you find the most appropriate solution to fit your situation.