Republicans Accuse Dems of Using IRS Audits to Bully Conservative Groups

From TheBlaze.com:

Congressional Republicans are accusing Democrats and administration officials of leaking privileged IRS information and using invasive audits to bully conservative groups, the New York Times says, and they are not happy about it.

The first charge by Republicans Senators centers around a senior Obama administration official who may have improperly accessed the tax records of Koch Industries, an oil company whose owners are major conservative donors, while the second charge lambastes Senator Max Baucus (D-MT) for scoping the funding activities of historically conservative tax-exempt groups.

According to the Times, the Treasury Department has opened up an investigation regarding allegations by Sen. Chuck Grassley (R-IA)* and six other Republican senators who claim a senior administration official disclosed confidential taxpayer information regarding Koch Industries — whose owners are major conservative donors — during a conference call with journalists.

During that call, the official pointed to Koch Industries as an example of “multibillion-dollar businesses that are structured as partnerships in ways that allow them to avoid paying sizable corporate taxes.”

The 3 Main Types of IRS Audits

Although the IRS performs over a million audits per year, not every one results in an in person review. In fact, the most popular type of audit is done by mail. The Roni Deutch Tax Center - Tax Help Blog posted a new entry explaining the 3 main types of audits. Check out a section of the article below, or click here for the full text.

Letter Audit

The letter audit is by far the most common type of IRS audit. Typically, letter audits are a simple request for more information, or a list of possible math errors. Some times the audit is just to inform you of a correction that has been made to your return, which can result in either a tax bill, or a larger refund. The IRS may ask you to supply them with a few documents or receipts, and you will be required to respond.

The IRS may take a while to process your response, and it could take weeks or even months before you hear back regarding the audit. With a letter audit you are not required to meet face to face with any IRS representatives. All correspondences can be completed through the mail.

Office Review

The second, and more intimidating type of IRS audit is the office review. You will be asked to meet with an IRS auditor at a place in close proximity to your home address. The representative will work with you to schedule a review at a time that is convenient for you, and you can feel free to ask to reschedule any appointment that might not fit into your schedule.

5 Things to Know About Getting Audited

Getting audited is not fun for anyone, but being aware of new trends can help taxpayers avoid a potential audit. CNNMoney.com recently put together a helpful list of five things you know about getting audited, check out a section of their article below or find the full text here.

1. Audits are on the rise

Now that your 1040 is out the door, you may be second-guessing yourself: Will the IRS come a-calling?

Well, the number of audits has risen every year over the past 10. And experts expect that trend to continue, what with the ballooning federal deficit and the additional $400 million earmarked for tax enforcement in 2010.

Even so, your audit risk in any one year is slim -- about 1% if your income is under $200,000, 2% from there to $1 million, and 6% for the über-rich, based on 2009 data. Those selected tend to be self-employed or have unusually large write-offs, says Trudy Moore, an enrolled agent in Stevensville, Montana. If you do get hit this year, it's likely to be for 2008 taxes: Audit letters typically go out 18 months after the filing date.

2. Delaying can cost you the right to fight

If you are one of the unlucky few to get the dreaded letter from the IRS, be sure to take the action required within the time frame allotted, usually 30 days. Otherwise the dispute becomes a final assessment and moves on to the collections department, with no grace period.

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Home Buyer Tax Credits Spark IRS Audits

From SunSentinal.com:

If you claimed a home buyer tax credit, don’t be surprised if your friends at the Internal Revenue Service ask for an audit.

The Associated Press reports that National Taxpayer Advocate Nina E. Olson told a congressional committee Thursday that about a fifth of all IRS audits done by mail in the past six months were for people claiming the credit. The audits can mean major delays -- up to five months -- in getting refunds, AP says.

Lawmakers approved an $8,000 credit for first-time buyers last year to help the beleaguered housing market. It was supposed to expire Nov. 30, but Congress extended and expanded the program. Existing homeowners looking to buy new principal residences now are eligible for $6,500.

First-time and repeat buyers must sign sales contracts by April 30 and close by June 30 to be eligible for the credits. And in case you were wondering, don’t expect any more extensions.

IRS Data Show Tax Agency Audits Big Firms Less Often

According to new data from the IRS, there has been a 20% drop in number of audits being performed on companies with more than $250 million in assets over the past decade. As Kevin McCoy of USA Today explains, although these numbers are surprising, the data could be somewhat misleading as the total number of returns filed changes every year.

The data confirm a downward trend identified in a critical analysis this week by the Transactional Records Access Clearinghouse, a non-partisan research organization based at Syracuse University. The IRS provided the data to USA TODAY after questioning TRAC's conclusions.

"There's been a steady decline in IRS audits of the largest corporations," said TRAC co-director Sue Long.

The drop is significant for taxpayers — who face a midnight deadline to file their personal income tax returns — because TRAC found the IRS identified nearly $28.6 billion in tax-underreporting by the nation's largest firms in fiscal year 2009.

The IRS said audit percentages are an imperfect measure because they include tax returns filed, a changing number the agency can't control. The annual number of large corporation audits rose more than 22% in the last decade, IRS data show.

Continue reading at USA Today.com…

Health Effects of IRS Collections

I put a lot of effort into writing about the financial consequences of unpaid tax debts on my blog. However, the stress of an IRS audit or the back tax collection process can lead to very serious health problems as well. To help the readers of my blog avoid a serious medical issue, I have put together the following list of common health effects of IRS collections. By staying aware of potential problems, you can establish a routine to properly manage your stress.

Chronic Stress

Dealing with the IRS can be stressful for any American. However, when the stress becomes chronic it can lead to a whole other set of medical issues. Chronic stress is the human body’s response to large amounts of stress for prolonged periods of time. If untreated, chronic stress can seriously inhibit both your mental and physical health in a variety of ways including headaches, insomnia, anxiety, mood swings, depression, hypertension, hemorrhoids, and even varicose veins. In more serious cases chronic stress can develop into panic attacks, and eventually a panic disorder. All of these symptoms are difficult to live with, and impossible to ignore. If you are experiencing any signs of chronic stress, then I highly recommend seeking the opinion of a medical professional.

Eating Problems

As a response to insomnia, depression, or stress it is very common to unknowingly alter your eating habits. Disorders related to eating can develop quickly, and be hard to recognize. If you find yourself not following your usual eating habits because of stress, then you should try planning balanced meals a day ahead of time. That way you can stick to your plan, and ensure you are receiving proper nutrition. Additionally, having an eating plan can make it difficult to skip meals, or resort to only eating unhealthy fast food. If you continue to struggle with your eating habits then you might want to seek support from friends and family, or even a trained therapist.

Depression

Severe stress and mild to severe depression often go hand-in-hand when dealing with life changes and prolonged problems, such as IRS collections. Depression comes in many degrees of severity, but recognizing that you have a problem with depression is not always easy. Everyone feels depressed at times, but if your depression continues to last, and you become so unhappy that it is difficult to get out of bed then you may have a more serious disorder. Try spending more time with close friends and family, especially on your most stressful days. If this does not help then you may want to visit a doctor or psychiatrist to see if your depression is a problem that needs medical treatment.

Dental Health

Constantly worrying about a tax problem can also lead to dental issues, if you are not properly managing your stress. Studies show that individuals facing large amounts of severe stress for an extended period of time have higher chances of developing tooth or gum disease. It is also common for people to begin grinding their teeth while under stress, which can also lead to dental problems. Therefore, it is important to remember your dental health – and not neglect your teeth – while going through a stressful time in your life.

PTSD

Once the IRS collection process is over and the weight is lifted from your shoulders, you should still monitor your health and mental well being for an extended period of time. Post-traumatic stress disorder can happen to anyone – and in varying degrees – that have dealt with such a stressful situation that their body could not handle it at the time. Common symptoms of PTSD are flashbacks, lucid nightmares, sleeplessness, anxiety, and emotional numbness. If you experience any of these symptoms make an appointment with your doctor as soon as possible.

Other Serious Risks

The list goes on and on when it comes to the health effects of an unhealthy state of mind. In addition to the problems listed above, other serious risks include ulcers, obsessive-compulsive disorder, severe anxiety, hyperthyroidism, hair loss, heart disease, and even cancer.

Prevention

Obviously the best way to avoid any of the aforementioned health problems is to remove the issue causing you stress. However, when it comes to tax debts simply removing the problem is much easier said than done. One option is to hire a tax lawyer who can handle your IRS back tax account. Once they have a power of attorney on file, you can forward your lawyer all letters and calls you receive from the IRS. Additionally, take active steps to keep your body relaxed such as yoga, meditation, or daily breathing exercises. If you are still having trouble dealing with the stress then you should consider seeking help from a medical professional as well.

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IRS Corporate Audit Division Will Examine UBS Tax Evasion Cases

When the average taxpayer gets audited by the IRS, they usually get contacted by a regular IRS revenue office. However, this is not the case for those who are being audited as a result of the recent UBS settlement. According to Bloomberg.com, the IRS has created a new division for auditing wealthy Americans suspected of evading taxes offshore as part of an effort to get every dollar they are owed.

The tax agency posted internal job listings yesterday seeking auditors to work for a newly created office within its Large and Mid-Size Business division that will be tasked with monitoring what it called the “global high-wealth industry.”

The move centralizes responsibility for auditing wealthy individuals suspected of offshore tax evasion in a unit with the most experience navigating international tax treaties and untangling complex cross-border business structures.

“That’s where the most sophistication is at IRS,” said Michael Murphy, a former deputy IRS commissioner who is now a consultant for the law firm Sutherland Asbill & Brennan LLP in Washington.

Responsibility for auditing wealthy individuals is currently split among IRS divisions devoted to small businesses and self-employed wage earners and investors, which don’t have as much experience in cross-border transactions, Murphy said.

The IRS says it anticipates handling up to 10,000 new cases related to UBS, including thousands of people who come forward voluntarily in exchange for reduced penalties before Sept. 23.

U.S. Corporate Tax Audits Down 9 Percent

From Reuters.com:

The percentage of corporate tax returns audited by U.S. collectors fell about 9 percent in 2008 and was down nearly 20 percent from about a decade earlier, an inspector general report released on Monday said.

About 15.3 percent of returns filed by corporations with $10 million or more in assets were examined by the Internal Revenue Service last fiscal year, down from about 16.8 percent in 2007, the Inspector General for Tax Administration for the U.S. Treasury Department said in its annual report.

In 1999, about 19 percent of tax returns for the group were examined by tax collectors. The rate of examination ranged between 15 and 19 percent in the intervening years, with the exception of a 20 percent rate in 2005.

The IRS's enforcement staff has been whittled down in recent years, a response to fervent complaints by some U.S. lawmakers critical of what was characterized as aggressive tax collection.

"After several years of improved results, many collection function activities and results declined during FY 2008," the report said.

The enforcement staff shrank 20 percent to 14,900 at the end of 2008, down from 18,700 in 1999, the report said.

President Barack Obama has proposed doubling the agency's enforcement budget for 2010, including hiring about 800 new staffers just to enforce international tax law. That is part of a wider effort by the administration to crack down on what it calls the abusive use of tax loopholes and outright tax evasion.

Enforcement revenue fell in 2008, though that interrupted a steady rise in the past decade or so, the report said.

The IRS collected $2.75 trillion in fiscal year 2008, a record.

The report did not make any specific recommendations, but noted the enforcement of tax laws is among the key "high-risk" areas consistently cited by the Government Accountability Office.

The tax gap -- the difference between what is owed and what is collected -- was about $345 billion in 2001, the last year it was examined, according to the government.

IRS Audits of Large Companies Decline for 3rd Year in Row

From the Wall Street Journal.com:

Internal Revenue Service audits of large corporations fell for the third straight year, as the tax agency focused scarce resources on the growing area of partnership returns and the very largest corporations.

According to 2008 IRS enforcement data released Monday, the IRS audited 15.3% of returns of corporations with assets of $10 million or more. That is the lowest audit coverage level since 2003 and down from a 20% coverage rate in 2005.

Audits of corporations with assets of $50 million and higher increased, however. The IRS also continued to direct examination resources towards partnerships, auditing about 1,000 more partnership returns than it did in 2007, an 8% increase. The number of partnerships filing returns has grown by about two-thirds over the last 10 years.

IRS Deputy Commissioner Linda Stiff said 2008 was "a very challenging year," where the agency saw a decline in enforcement staffing levels of about 2%.

In addition, some enforcement staff were re-directed to help field calls from taxpayers related to tax rebates that Congress ordered as part of economic stimulus legislation.

The "IRS is very proud of what we were able to accomplish. It's been a solid year in the enforcement arena, and we continued to build on the success of earlier years," Ms. Stiff said in an interview.

Overall, the IRS collected $56.4 billion from enforcement efforts in 2008, which would be a record but for 2007's high-water mark $59.2 billion in collections.

Dean Zerbe, national managing director of the alliantgroup LP, said the decline in overall large corporation audit coverage is disturbing given what he says is a shift in IRS resources towards more of a focus on small and medium-sized firms.

Audits of small and mid-sized firms don't produce as much tax revenue, and about one-third of the time produce no change in taxes assessed, according to Mr. Zerbe. "They spend a lot of time doing root canals on people who are basically compliant," he said.

Alliantgroup represents small and mid-sized firms in disputes with the IRS.

Individual audits remained about the same as in 2007, with about 1.4 million returns audited, or about 1% of total individual returns.

Taxpayers with income of $200,000 or above had about a 3% chance of being audited. Those with income of $1 million and above stood a 5.6% chance of being audited, down from 6.8% coverage in 2007.

Ms. Stiff said the IRS will continue in 2009 the same level of focus on individuals with incomes above $200,000. With respect to business returns, the agency will continue to give more scrutiny to the largest corporations, and will intensify examinations with respect to employment taxes, she said.

IRS Circling, UBS Bans Travel for Some Advisors

UBS employees with clients under fire overseas will have to stay put for a while, because they have been ordered not to travel until the investigation is done. Check out the following story on the new development courtesy of RegisteredRep.com.

The United States’ ongoing hunt for tax cheats will be putting a crimp in some clients’ quarterly portfolio reviews. UBS financial advisors who have clients outside of the country where they do business have been instructed to stay put by the firm.

According to a firm spokesman, the travel ban took effect April 1st for all “client-facing staff” and will remain in effect until “a comprehensive review of the policy and compliance framework for its international wealth management offering” is complete. The firm is “conducting the review given the international scope and complex regulatory environment of UBS’ international wealth management business,” according to the statement.

No doubt, the IRS’ ongoing civil complaint against the firm inspired the ban. The IRS filed a civil action against the firm on February 19th, one day after UBS settled with the SEC and the Department of Justice resolving criminal and regulatory investigations of the firm’s cross-border business. As part of that settlement, UBS paid a $780 million fine and agreed to hand over the names of nearly 300 clients. But the IRS wants more. It is seeking the names of 52,000 American UBS clients—names that the firm contends are protected by Swiss privacy laws.

According to the WSJ, Steven M. Rubinstein, an accountant in Boca Raton, Fla., is the first among the names handed over to the IRA to be formally charged. He was charged last week with filing a false income-tax return and detained pending a bond hearing.

The Audacity of the Audit

Audit.

Is there a more frightening word in the English language? Probably not, for most taxpayers. In the most recently completed tax year, the IRS used the audit to collect more than $23.5 billion, a 37% increase over the previous year. High-income earners and small business owners are especially suspect when it comes to audits.

But first things first. What is a tax audit? Well, it is basically a thorough examination into the background and substantiation of income, expenses, deductions, and credits claimed on an individual or business tax return. It is conducted to ensure that items claimed on the return are correct and can be proven through documentation (e.g. receipts, etc.).

There are a couple of types of audits, each with its own rules.

By far the most common type of audit is called a Correspondence Audit. Generally, the IRS will send you a letter, requesting more documentation from you. You provide the documentation, and can go on with your life. Though it can easily result in an increased tax liability.

The IRS also conducts Office Audits, where you are asked to bring documentation to the nearest IRS office for a review and interview. The IRS agent will request specific documentation. This is where deductions will be challenged, and if fail to back it up, you can end up with a much higher tax bill. Be sure you only bring what is asked, otherwise, you’re opening yourself up for an expanded audit. If you have it with you, the IRS agent will want to see it.

The Field Audit will strike fear in the hearts of even the most conscientious taxpayer. This usually occurs in more complex tax situations, such as with a business entity. In this case, the IRS agent will want to fully review your return and verify each and every deduction and income source. This can be a lengthy, involved process and can end up costing you thousands in increased tax liabilities. I guess the one piece of good news is that you are allowed to decide when and where to schedule the meeting. I recommend picking a neutral location — preferably in your tax professional’s office, since they probably know more about tax laws than you do.

IRS Challenges AIG Unit Tax Deals: Report

The IRS is challenging certain unit tax deals structured by AIG, reports Reuters.com. Check out a snippet of their article explaining why the IRS would take such a position below.

The U.S. Internal Revenue Service is challenging some of the tax deals structured by AIG Financial Products Corp, the unit of the giant insurer that has caused political outrage over $165 million in employee bonuses, the Wall Street Journal said.

Some banks that received government-funded payouts to settle contracts with American International Group turned to the insurer for help cutting their income taxes in the U.S. and Europe, the paper said, citing court records and people familiar with the business. The company paid $61 million last year in disputed taxes stemming from the deals, but sued the U.S. government last month in federal court in New York, seeking a refund, the paper said, citing filings in the case.

Banks that worked with AIG on tax deals include France's Credit Agricole SA, Bank of Ireland and Bank of America Corp, the paper said, citing AIG's lawsuit. The banks declined to comment to the paper.

In general, AIG's tax deals permitted U.S. companies and foreign banks to effectively claim credit in their home country for a single tax payment, partly through the use of an offshore AIG subsidiary, the paper said.

In its lawsuit against the government, the insurer said it was told by the IRS that AIG hadn't shown that the transactions "had sufficient economic substance and business purpose" to justify tax benefits, the paper said. The IRS declined to comment to the paper.

An AIG spokesman declined to discuss with the paper the tax-cutting transactions in detail but asserted that the tax benefits were proper and justified, the paper said. AIG wants to "ensure that it is not required to pay more than its fair share of taxes," the paper cited the company spokeswoman as saying.

Tempting the Tax Auditor

BankRate.com posted a wonderful article on tax auditing, and the way the IRS is re-thinking them in the struggling economy. You can find a snippet of the post below, but the full story can be found here.

Dear Taxpayer,

Some of the information that you provided to us does not agree with the information we received from other sources. -- The Internal Revenue Service.

You've just joined an elite club, one whose initiation ritual is an IRS audit. Unfortunately, you can't refuse membership -- and the dues could be astronomical.

When the IRS Reform and Restructuring Act was enacted in 1998, lawmakers ordered the agency to focus more on taxpayer rights instead of collection activities. Not surprisingly, the number of audits -- or examinations, as the agency prefers to call them -- dropped dramatically.

The first year of the kinder, gentler IRS, about one of every 79 tax returns were audited. By 2003, it was even easier for tax scofflaws; that year, according to IRS data, only one of every 150 individual taxpayers were audited.

But the tax times, they are a-changing.

More audit attention

IRS Commissioner Doug Shulman says he wants to balance his agency's enforcement and service responsibilities. To that end, he has announced programs designed to take into consideration the financial struggles that many taxpayers are encountering in today's economy.

But balance doesn't mean taxpayers are off the hook. The IRS has made it clear it intends to ramp up enforcement among three groups of taxpayers: high-net-worth individuals, U.S. businesses with international operations and large corporations.

Some of those higher-income individuals have been under the tax gun for more than a year as the IRS has been investigating accounts held by U.S. taxpayers in European tax-haven countries such as Liechtenstein and Switzerland. In its most recent effort to get information on accounts that tax investigators believe are used to shield income from U.S. taxes, federal prosecutors have filed a lawsuit against Swiss banking giant UBS to force it to waive the country's secrecy rules and release the American account holder information.

But the rich and big business aren't the only targets. Overall in fiscal year 2008 (Oct. 1, 2007 through Sept. 30, 2008), the IRS took a second look at almost 1.4 million returns. That's the highest number of audits since 1998.

There are anecdotal reports that the IRS is paying closer attention to returns that contain large mortgage interest deductions on Schedule A. And if you're a small business person, either as a partnership or a Schedule C filer reporting self-employment income on your personal tax return, make sure you take extra care with your returns.

There's a good reason for the IRS' increased interest in small business filers. Because self-employment income typically has no verification mechanism (i.e., the IRS can't double check much of it in the way it can verify wage income via an employer-issued W-2), tax officials believe that many small business people underreport their income. That will change somewhat in 2011, when some new third-party reporting requirements kick in, but until then, the IRS will be on guard for any income overlooked by filers.

Doctor pleads guilty to hiding $3M from IRS

From The Associated Press:

The business partner of a key witness in the federal investigation of corruption under former Illinois Gov. Rod Blagojevich has pleaded guilty to hiding $3 million in income from tax collectors.

Dr. Robert Weinstein of Northbrook, Ill., admitted Tuesday in a signed plea agreement that he and political fundraiser Stuart Levine siphoned $6 million out of a charity and that he didn't report the money to the Internal Revenue Service.

Levine was the government's star witness at the trial of political fixer Tony Rezko, and he's already admitted his part in the scheme.

Rezko was convicted of shaking down businesses seeking state contracts for campaign contributions.

Weinstein faces a sentence of two years or more. U.S. District Judge Ruben Castillo set sentencing for July 1.

IRS Seeks to Recover $227 Million in Unpaid Taxes From Stanford

A financer from Texas is in big trouble with the IRS, and they are doing all they can to recover the money he owes. Check out the story below, thanks to Bloomberg.

Investors in R. Allen Stanford’s Antiguan bank may have to get in line behind the Internal Revenue Service as they seek to recover money from the alleged swindler.

The IRS asked a judge to let it continue to seek at least $226.6 million in back taxes from Stanford, the Texas financier accused of running an $8 billion Ponzi scheme.

The motion was filed on March 13 in the U.S. District Court in Dallas, where a court-appointed receiver is sorting out claims for more than $1 billion in assets frozen in customer accounts and in gold coins and bullion seized last month.

“The IRS shall file a fairly significant claim against R. Allen Stanford,” agency lawyer Manuel Lena Jr. wrote in the so- called motion to intervene in the case brought against Stanford by the Securities and Exchange Commission.

Stanford’s federal tax bill has swelled to twice the amount previously reported as penalties and interest piled up, and it may grow further because Stanford hasn’t filed his 2007 tax return, Lena said in the court filing.

Ralph Janvey, the court-appointed receiver, will file his response in court today, answering more than 45 groups of investors that have requested permission to join the SEC’s case against Stanford and his companies.

Janvey has already released $4.1 billion in frozen Stanford investor accounts. Only accounts linked to certain executives and employees, the bullion division, and accounts containing investments at Antiguan-based Stanford International Bank remain under the court-ordered freeze.

Top 10 Most Common Tax Prep Mistakes

Between piles of paper work lists of numbers to crunch, it is not hard to miss a thing or two when you are preparing your federal and state tax returns. However, some mistakes could lead to the loss of a valuable deduction, or even worse, an IRS penalty. To help the readers of my blog this tax season, I have put together this list of the top 10 most common tax prep mistakes.

1. Not Checking Math

Before sending in those forms, go over your math a few times to make sure your return is 100% accurate. You could get fired, or even audited if you add an additional zero somewhere, or put a decimal point in the wrong spot. Crunching the numbers one last time is more than worth taking such a risk.

2. Not Listing All Jobs

If you worked in more than one job this year, you need to make sure that you list them all on your tax return. If you do forget to list any income, you could be accused of tax evasion. Rather than go through all the hoops that tax evasion will put you through, make sure to list any and all sources of employment, no matter how long or short they were.

3. Incorrect or Missing SSN

It is imperative that you put your social security number (SSN) on your tax forms. Even more importantly, the number that you list must be correct. In addition to correctly listing your SSN, if you want to be extra cautious, you can go a step further and also write your social at the top of each page. This way, if the IRS misplaces a form, they will know just who it belongs to.

4. Charity Misinformation

Making a charitable donation is more than good for your karma; it is good for reducing your tax liability. However, the IRS is becoming stricter with contributions, and if you forget to list the charity correctly on your tax forms then you will receive no deductions. It is also important to list the correct contact information for the charity, so the IRS will not think that you are trying to get away with a false claim.

5. Listing Wrong Marital Status

Even if you were divorced fairly recently, it is still necessary to list your current marital status. The IRS is going to get suspicious when your ex-spouse lists themselves as single and you do not. Although it is not technically tax evasion, there could be financial penalties involved if the IRS chooses to audit you.

6. Miscalculated Childcare Costs

Children and students of all ages require large amounts of funding for everything from childcare to education costs. Fortunately, the IRS allows you to deduct expenses spent on childcare. However, these credits have many qualifications, so make sure you are fully qualified before you submit your forms.

7. Forgetting to List Unearned Income

Believe it nor not, the IRS already knows how much unearned income you have made this year. In addition to forms like 1099, the IRS also has the ability to monitor your bank account activity. To avoid penalties and fines, keep good track of your unearned income throughout the year and list it all on your tax return.

8. Missing the Deadline

Missing the April 15th deadline is not the worst mistake you could make... unless you also forget to file for an extension. An extension gives you an additional 6 months to file your return forms, at no additional costs.

9. Not Using IRS Mail Material

The IRS sends you pre-addressed envelopes for a reason; they have the correct info already on them. It also makes the return sorting process much easier since they addresses are clear and easy to read. Writing your own mail material could lead to a longer return time or even the chance of it getting sent to the wrong place and lost in the mail. This one's easy to follow, just keep and use their free mail material.

10. Missing Signature

It is surprising this mistake even makes the list, but sadly it is true. For some reason when people are flustered over crunching numbers and attaching receipts, they forget important details like signing the documents—possibly because the signature and date is often the last are often the last things to do. However, your signature is what makes it genuinely yours, and the IRS will not take your return without it.

8 Ways to Prevent an Audit

The RDTC Tax Help Blog recently posted an entry with advice on how to prevent an IRS audit. Below are the first three items, but you can read the full list by clicking here.

1. Keep Neat

One of the easiest ways to get audited is by simply not providing all the correct documentation. When doing your taxes, it can be easy to miss a step or forget to include a few things. Unfortunately, this looks like evasion to the IRS, so do everything you can to keep all your tax documents together before tax season. That way you can make sure that all of your returns are accurate before you file them.

2. Keep Business Separate

It's easy to get carried away when buying stuff for "the office". However, make sure that when you are buying anything for your business that it is a business expense allowed by the IRS. Additionally, too many write-offs for your business that seem suspicious are a big red flag for the IRS, so only write-off items that clearly serve a business function.

3. Check Your Income

Make sure the income you put on your return matches the income number on your income forms exactly. While this does not always make for an audit, it only takes a few things to raise suspicion. Listing an incorrect income is of the easiest ways to get audited, but can easily be avoided by double-checking your return before you file it.

Continued at RDTC.com…

IRS Audits More Millionaires

According to ABC News, in 2007 one out of every 11 households with incomes over $1 million were audited by the IRS in 2007. However, the IRS claims it’s auditing rates were up for people of all income levels last year.

The audit rates in 2007 were as follows:

• 9.25% for those with incomes of more than $1 million, up from 6.3% in 2006.
• 2.87% for those with incomes above $200,000, up from 2.5% in 2006.
• 0.93 percent for those earning under $100,000, up from 0.89% in 2006.

The IRS looked at a total of 1,384,563 returns in fiscal 2007. This represents 1.03% of the total individual returns filed with the IRS. The average audit rate was up 7% from the year before. On the business side, the IRS focused on partnerships and mid-market corporations in 2007, especially those with assets between $10 million and $50 million.