Six Common Myths About The Dreaded IRS Tax Audit

February 6, 2025/0 Comments/in Audits, Featured, IRS Operations & Procedures/by Tax Attorney

Filing taxes is punishment enough without the vague threat of an IRS audit looming over our heads. For understandable reasons, the IRS insists on keeping the ins and outs of its auditing process on the murky side. How will you catch the bad guys if you give them the rule book first? But because of the sense of mystery around the process, it’s an area of regulation often misunderstood by taxpayers.

Here are a few common myths about the dreaded tax audit:

Myth #1: Only the wealthy get audited.

While it’s true that big businesses and the uber-rich are often targets of IRS tax probes, that doesn’t necessarily mean low- and middle-income workers are free and clear. The agency is increasingly relying on data mining and robo-audit systems to detect errors in tax returns, which has actually made it easier to go after small-fish taxpayers.

In 2018, the IRS audited 520,000 of the 153.9 million tax returns filed – an overall audit rate of 0.3% but a substantial portion of those selected for audit involve taxpayers with an adjusted gross income of less than $1 million. One of the biggest reasons behind this trend is the IRS’s move to pursue people who fraudulently claim the Earned Income Tax Credit, a juicy tax break that for calendar year 2024 is worth an average $7,830 for a family of five earning less than $66,819 a year. IRS estimates that around 33 percent of EITC claims are paid in error. Some of the errors are unintentional caused by the complexity of the law, but some of the claims are intentional disregard of the law.

If you really look at the scrutiny of low- and middle-income wage earners, there is much more detailed scrutiny now than for those with investments and other sources of income. It just takes fewer resources to audit lower-income earners. And in all fairness to the IRS, Congress hasn’t been exactly generous with budgets. It was only until the Inflation Reduction Act of 2022 was signed into law by then President Biden that IRS was promised additional funding over the next 10 years. But now that Trump is serving as President and the Republicans control Congress, this additional funding is in serious jeopardy.

Myth #2: An audit means you’ll have an IRS agent knocking down my door

If the IRS’s computer system flags your tax return, you’d be hard-pressed to get an agent to pick up the phone, let alone make a house call. The traditional IRS audit and someone showing up on your doorstep is a thing of the past.

For starters, the IRS does not have the manpower. Thanks to rounds of budget cuts, the IRS has had to reduce staff and has no time or expense to send out agents to your home or office. Additionally, with the fraud and personal safety issues of strangers coming to your doorstep, the IRS is not looking to put their agents in danger or commit additional resources to prove to taxpayers that the officials who are making the house-call are genuine IRS agents.

That is not to say that IRS stopped doing field visits but if your return is flagged, the initial contact will likely be a letter in the mail seeking additional information. From there, you can either answer by return mail or call them directly.

Myth #3: If I owe tax money, the IRS will be after me in a hurry

Rest assured, if IRS flags your return for suspicious activity, you will hear from them at some point — but probably not for a year or two…or more. The IRS normally has three years to go after questionable tax returns, and with personnel shortages, even taxpayers who willingly call them to sort out issues have a hard time getting them resolved.

Millions of phone calls to the IRS still go unanswered as most people don’t want to wait sometimes for hours to get through to a human being. It is not uncommon that the phone lines are closed due to technical problems or heavy traffic.

The IRS is under-funded and under-staffed. If a consumer calls the IRS, when they get through to a human being, they will likely just be told where to find the answer on the IRS website.

Myth #4: If I file for too many deductions and tax credits, I’m setting myself up for an audit

Tax credits and deductions are there for a reason: to ease the tax burden for workers who need it most. Don’t let the threat of an audit dissuade you from applying for tax credits and deductions you’re justifiably due.

Despite the IRS’s efforts to crack down on Earned Income Tax Credit fraud, it is actually one of the most commonly overlooked deductions.

Home-office deductions are another oft-cited target for the IRS. But it’s an overblown fear that hardly applies today, when there are more than 42 million Americans working as freelancers and independent contractors.

This was once the case, back when working from home was less common but with millions of home offices running today, the system is far more accommodating for home office users. The important thing to remember: Make sure you keep your receipts and documents and only deduct legitimate business expenses… which mean that the expense must be typical and necessary for your business.

The bottom line: If you’ve earned a tax credit or can justifiably claim a deduction, do it. Just make sure you’ve done the research and know what you need to back up your claim first.

Myth #5: I’ve got my tax refund so I don’t have to worry about an audit.

Even if your tax return was accepted and you cashed your refund check, you’re still fair game for auditors.

The IRS uses a special matching system that tracks each taxpayer’s W-2s, 1099s and 1040 forms. If it turns out that you’ve under-reported your income, the system will eventually catch up to you.

You could get your refund, and about one or almost two years later, if there’s a problem with your taxes, you’ll likely get a letter in the mail from the IRS.

As noted above, the IRS has three years to track you down, but in extreme cases of underreporting or tax evasion, they can basically come after you whenever they want.

And that’s not even the worst part. Any interest and penalties owed on your unpaid taxes will start accruing the day your taxes were due — not two years later when the IRS letter finally shows up in your mailbox. Two years of compounding interest and penalty charges will only add salt to the wound.

Myth #6: If I hire a tax attorney, the agent will go hard thinking that I have something to hide.

You should recognize that the agent has many audits assigned to him or her and needs to report progress to the group’s supervisor. The more time that an agent has to spend on one case, it takes away time from other cases.

It is for that reason that agents prefer to deal with a tax professional representative as they know how information should be presented and the agent need not spend the extra time to educate the representative unlike a taxpayer who knows little or nothing about tax procedure.

What Should You Do?

When faced with an IRS audit, an effective strategy can be the key to obtaining a favorable outcome and the chances of this should be better if you hire a qualified and experience tax professional. Early in the audit process, your representative should consider the policy against repetitive examination, the IRS policy on reopening examinations, and the various statutes of limitations that apply to examination of a taxpayer’s records and books.

1. The IRS Policy Concerning Repetitive Examinations

An initial consideration is whether or not the taxpayer’s audit violates the IRS’s policy against repetitive examinations. The policy against repetitive examinations applies when the taxpayer has been audited in the past two years, and the audits resulted in essentially no change. If you are a taxpayer who has been audited once in the past two years and your audit resulted in little or no change, then you should raise the repetitive examinations issue with the IRS immediately upon receiving an audit letter from the IRS. In many cases, the audit can be resolved and closed at this very early stage if the requirements of the repetitive examinations policy are met. This is a very useful strategy that can be used to simplify the audit process for the taxpayer.

2. The IRS Policy Concerning Reopening Examinations

The IRS generally does not reopen closed cases. It may occur in rare cases and under very limited circumstances. If the IRS tries to reopen a closed case, the taxpayer or his or her qualified representative should ensure that the IRS is following its own procedures and regulations regarding to reopening closed IRS examinations.

3. Statutes of Limitation Applying to IRS Audits

Another factor that the taxpayer or his or her representative must consider initially when receiving an IRS audit notice is the application of various statutes of limitation governing audits. Generally, the IRS can include returns filed within the last three years in an audit. However, the IRS does have significant leeway to expand an audit to include additional tax years if the examination reveals a need to look into the taxpayer’s tax situation in previous years. At the same time, this right of the IRS to examine additional years but be tempered by an opposing requirement that the examination of the taxpayer’s tax return be reasonable. Internal Revenue Code section 7605(b) states that only one inspection shall be made of a taxpayer’s books of account for each taxable year. IRC 7605(b) also provides that no taxpayer shall be subjected to unnecessary examinations or investigations of his or her tax liability. Consideration of statutes of limitation, as well as any reasonableness arguments that can be made on the taxpayer’s behalf, are an essential component of any IRS audit strategy.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you. Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Former Missouri Congressman and Auctioneer – Billy Long: Trump’s nominee to lead IRS. What Could This Mean To The Future Of IRS Tax Enforcement?

January 20, 2025/0 Comments/in Featured, IRS Operations & Procedures/by Tax Attorney

Danny Werfel who was sworn in as the 50^th IRS Commissioner on April 4, 2023 announced his resignation effective January 20, 2025 even though his current 4-year term does not expire until 2027. Donald Trump who will be inaugurated as President on January 20, 2025 has named his nominee, former U.S. Representative Billy Long of Missouri, to head the IRS.

Difference In Backgrounds

Danny Werfel, previously served as acting IRS commissioner before his current term appointment and held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group. In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress. In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19. The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds. Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But if Long is confirmed, he will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper. By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
Written letters from charities confirming your monetary donations from the previous year.
Receipts for business expenses you claimed.
Mileage Logs for business use of vehicle.
Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

IRS provides tax relief for Alaska flood victims in Juneau.

October 29, 2024/0 Comments/in Featured, IRS Operations & Procedures/by Tax Attorney

IRS provides tax relief for Alaska flood victims in Juneau.

On October 25, 2024 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses in the Juneau area of Alaska, affected by flooding that began on August 5, 2024. These taxpayers now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

The tax relief postpones various tax filing and payment deadlines that occurred from August 5, 2024, through May 1, 2025 (postponement period). As a result, affected individuals and businesses will have until May 1, 2025, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the May 1, 2025, deadline will now apply to:

Any individual or business that has a 2024 return normally due during March or April 2025.
Any individual, business or tax-exempt organization that has a valid extension to file their 2023 federal return. However, that payments on these returns are not eligible for the extra time because they were due last spring before the flooding occurred.
2024 quarterly estimated income tax payments normally due on September 16, 2024, January 15, 2025, and 2025 estimated tax payments normally due on April 15, 2025.
Quarterly payroll and excise tax returns normally due on October 31, 2024, and January 31, 2025 and April 30, 2025.

In addition, penalties for failing to make payroll and excise tax deposits due on or after August 5, 2024, and before August 20, 2024, will be abated, as long as the deposits were made by August 20, 2024.

Other Areas Having Extended Deadlines:

The IRS announced (Kentucky) announced (West Virginia) on May 31, 2024 tax relief for individuals and businesses affected by severe storms, straight-line winds, tornadoes, flooding, landslides and mudslides that began on April 2, 2024 in Kentucky and West Virginia now have until November 1, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 12, 2024 tax relief for individuals and businesses in 25 Minnesota counties affected by severe storms and flooding that began on June 16, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 9, 2024 tax relief for individuals and businesses in four states (South Carolina, Florida, North Carolina and Georgia) and on August 13, 2024 the IRS announced tax relief for individuals and businesses in the state of Vermont affected by Hurricane Debby now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 23, 2024 tax relief for individuals and businesses in Puerto Rico affected by Tropical Storm Ernesto that began on August 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 23, 2024 tax relief for individuals and businesses in South Dakota affected severe storms, straight-line winds and flooding that began on June 16, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 28, 2024 tax relief for individuals and businesses in the U.S. Virgin Islands affected Tropical Storm Ernesto that began on August 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 10, 2024 tax relief for individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2024 tax relief for individuals and businesses in Louisiana affected by Tropical Storm Francine that began on September 10, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 18, 2024 tax relief for individuals and businesses in Pennsylvania affected by Tropical Storm Debby now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 1, 2024 tax relief for individuals and businesses in parts of Illinois affected by severe storms, tornadoes, straight-line winds and flooding that began on July 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 1, 2024 tax relief for individuals and businesses affected by Hurricane Helene, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 3, 2024 tax relief for individuals and businesses affected by wildfires that began on June 22, 2024 to the Confederated Tribes and Bands of the Yakama Nation in Washington state now have February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 11, 2024 tax relief for individuals and businesses affected by wildfires that began on July 10, 2024 to the San Carlos Apache Tribe in the State of Arizona now have February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 11, 2024 tax relief for individuals and businesses affected by Hurricane Milton, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance.

For Alaska – Individuals and households that reside or have a business in the Juneau area.

For Arizona – Individuals and households that reside or have a business in the San Carlos Apache Tribe.

For Alabama, Georgia, North Carolina and South Carolina – Individuals and households that reside or have a business in the state.

For Florida – Individuals and households that reside or have a business in the state.

For Tennessee – Individuals and households that reside or have a business in the following 8 counties: Carter, Cocke, Greene, Hamblen, Hawkins, Johnson, Unicoi and Washington counties.

For Virginia – Individuals and households that reside or have a business in the following 6 counties: Grayson, Smyth, Tazewell, Washington, Wise and Wythe counties; and the City of Galax.

For Washington State – Individuals and households that reside or have a business in Confederated Tribes and Bands of the Yakama Nation.

For Illinois – Individuals and households that reside or have a business in Cook, Fulton, Henry, St. Clair, Washington, Will and Winnebago counties

For Pennsylvania – Individuals and households that reside or have a business in Lycoming, Potter, Tioga and Union counties.

For Louisiana – Individuals and households that reside or have a business in the entire state.

For Connecticut – Individuals and households that reside or have a business in Fairfield, Litchfield, and New Haven counties.

For New York – Individuals and households that reside or have a business in Suffolk County.

For the U.S. Virgin Islands – Individuals and households that reside or have a business in any of the U.S. Virgin Islands’ four islands.

For South Dakota – Individuals and households that reside or have a business in Aurora, Bennett, Bon Homme, Brule, Buffalo, Charles Mix, Clay, Davison, Douglas, Gregory, Hand, Hanson, Hutchinson, Jackson, Lake, Lincoln, McCook, Miner, Minnehaha, Moody, Sanborn, Tripp, Turner, Union and Yankton counties

For Puerto Rico – Individuals and households that reside or have a business in any of Puerto Rico’s 78 municipalities.

For Minnesota – Individuals and households that reside or have a business in Blue Earth, Carver, Cass, Cook, Cottonwood, Faribault, Fillmore, Freeborn, Goodhue, Itasca, Jackson, Lake, Le Sueur, Mower, Murray, Nicollet, Nobles, Pipestone, Rice, Rock, St. Louis, Steele, Wabasha, Waseca and Watonwan counties.

For North Carolina – Individuals and businesses and the following 66 counties: Alamance, Anson, Beaufort, Bertie, Bladen , Brunswick, Camden, Carteret, Caswell, Chatham, Chowan, Columbus, Craven, Cumberland, Currituck, Dare, Davie, Davidson, Duplin, Durham, Edgecombe, Forsyth, Franklin, Gates, Granville, Greene, Guilford, Halifax, Harnett, Hertford, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Martin, Montgomery, Moore, Nash, New Hanover, Northampton, Onslow, Orange, Pamlico, Pasquotank, Pender, Perquimans, Person, Pitt, Randolph, Richmond, Robeson, Rockingham, Sampson, Scotland, Stokes, Surry, Tyrrell, Vance, Wake, Warren, Washington, Wayne, Wilson and Yadkin.

For South Carolina – Individuals and businesses in all 46 counties.

For Georgia – Individuals and businesses in the following 55 counties: Appling, Atkinson, Bacon, Ben Hill, Berrien, Brantley, Brooks, Bryan, Bulloch, Burke, Camden, Candler, Charlton, Chatham, Clinch, Coffee, Colquitt, Cook, Crisp, Decatur, Dodge, Echols, Effingham, Emanuel, Evans, Glynn, Grady, Irwin, Jeff Davis, Jefferson, Jenkins, Johnson, Lanier, Laurens, Liberty, Long, Lowndes, McIntosh, Mitchell, Montgomery, Pierce, Richmond, Screven, Tattnall, Telfair, Thomas, Tift, Toombs, Treutlen, Turner, Ware, Wayne, Wheeler, Wilcox and Worth.

For Vermont – Individuals and businesses in all 14 counties.

For Kentucky – Currently, relief is available to affected taxpayers who live or have a business in Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union and Whitley counties.

For West Virginia – Currently, relief is available to affected taxpayers who live or have a business in Boone, Brooke, Cabell, Fayette, Hancock, Kanawha, Lincoln, Marshall, Nicholas, Ohio, Preston, Putnam, Tyler, Wayne and Wetzel counties.

The current list of eligible localities is always available on the disaster relief page on IRS.gov. The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

Tax Planning Tip

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2024 return normally filed next year), or the return for the current year (2023).

Be sure to write the FEMA declaration number on any return claiming a loss. That number being: “4782-DR“ for Kentucky or “4783-DR” for West Virginia or “3605-EM” for Florida or “3606-EM” for South Carolina or “3607-EM” for Georgia or “3608-EM” for North Carolina or “3609-EM” for Vermont or “4797-DR” for Minnesota or “3610-EM” for Puerto Rico or “4807-DR” for South Dakota or “3611-EM” for the U.S. Virgin Islands or “3612-EM” for Connecticut or “3613-EM” for New York or “3614-EM” for Louisiana or “4815-DR” for Pennsylvania or “4819-DR” for Illinois or “3615-EM” for Hurricane Helene victims or “4823-DR” for Washington State or “3622-EM” for Hurricane Milton victims or “4833-DR” for Arizona or “4836-DR” for Alaska.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper. By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
Written letters from charities confirming your monetary donations from the previous year.
Receipts for business expenses you claimed.
Mileage Logs for business use of vehicle.
Entertainment and Travel Logs for business

Tips On Reconstructing Records

Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app. Tax return transcripts show line-by-line the entries made on your Federal income tax returns. The most three recent tax years are available.

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

Do not wait for the next disaster to come for then it may be too late to retrieve your important records for a tax audit or for that matter any legal or business matter. And if you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you. And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

IRS provides expanded tax relief for Hurricane Helene and Hurricane Milton victims.

October 14, 2024/0 Comments/in Featured, IRS Operations & Procedures/by Tax Attorney

IRS provides expanded tax relief for Hurricane Helene and Hurricane Milton victims.

On October 11, 2024 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses affected by Hurricane Milton, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia. These taxpayers now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

The tax relief postpones various tax filing and payment deadlines that occurred from October 5, 2024, through May 1, 2025 (postponement period). As a result, affected individuals and businesses will have until May 1, 2025, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the May 1, 2025, deadline will now apply to:

Any individual or business that has a 2024 return normally due during March or April 2025.
Any individual, business or tax-exempt organization that has a valid extension to file their 2023 federal return. However, that payments on these returns are not eligible for the extra time because they were due last spring before the hurricane occurred.
2024 quarterly estimated income tax payments normally due on January 15, 2025, and 2025 estimated tax payments normally due on April 15, 2025.
Quarterly payroll and excise tax returns normally due on October 31, 2024, and January 31, 2025 and April 30, 2025.

In addition, for localities affected by Hurricane Milton, penalties for failing to make payroll and excise tax deposits due on or after October 5, 2024, and before October 21, 2024, will be abated, as long as the deposits are made by October 21, 2024. Localities eligible for this relief are: Alachua, Baker, Bradford, Brevard, Broward, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Gilchrist, Glades, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Indian River, Lafayette, Lake, Lee, Levy, Madison, Manatee, Marion, Martin, Miami-Dade, Monroe, Nassau, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putman, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, Suwannee, Taylor, Union and Volusia counties.

FinCEN also extends 2023 FBAR filing deadline to May 1, 2025

On October 11, 2024 the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) announced that victims of Hurricane Milton have until May 1, 2025 to file Reports of Foreign Bank and Financial Accounts (FBARs) for the 2023 calendar year. FBAR filings for calendar year 2023 would otherwise be due on or before October 15, 2024.

Florida Department Of Revenue extends filing dealine to May 16, 2025

The Florida Department of Revenue (DOR) on October 2, 2024 announced filing extensions for taxpayers affected by Hurricane Helene, Hurricane Debby and the severe storms that caused damage to counties in the Big Bend region of Florida in 2024.

The announcement extends the September 2024 and October 2024 reporting periods for sales and use tax, reemployment tax, and several other tax types to November 22, 2024, for the 17 counties in Florida where Hurricane Helene made landfall: Charlotte, Citrus, Dixie, Franklin, Hernando, Hillsborough, Jefferson, Lafayette, Lee, Levy, Madison, Manatee, Pasco, Pinellas, Sarasota, Taylor, and Wakulla. Eligible taxpayers that file Florida corporate income/franchise tax returns with original due dates or extended due dates falling on or after September 23, 2024, and before May 16, 2025, will now have a due date of May 16, 2025. This means that affected taxpayers with returns and payments with due dates postponed until February 18, 2025, due to Hurricane Debby in Florida will also now have until May 16, 2025, to file. The same holds true for affected taxpayers in counties that had due dates postponed for the Severe Storms, Straight-line Winds, and Tornadoes in May of 2024. The DOR also stated it will follow the relief granted by the IRS for affected taxpayers regarding tax return due dates so given the more widespread impact from Hurricane Milton, it is possible that the DOR will issue an announcement expanding relief to a level consistent with IRS.