Audit Worries Shouldn't Keep Taxpayers From Taking Valid Tax Breaks
H&R Block Advises Taxpayers Timely Response to IRS Notices Could Mean
KANSAS CITY, MO -- (Marketwired) -- 04/04/13 -- The federal
government estimates it has a $450 billion tax gap (the amount the
IRS estimates is missed in tax collections). One way the government
tries to close that gap is through IRS audits of those suspected of
having underpaid. In 2011, 7.4 percent of taxpayers were contacted by
the IRS about their returns, and the IRS collected $15 billion from
audits. H&R Block (NYSE: HRB) advises that even with an atmosphere
that includes more people being audited, taxpayers shouldn't be
afraid to claim all the tax breaks to which they are entitled.
"The best defense against an audit is to report all income and claim
only the tax deductions and credits you are due," said Kathy
Pickering, executive director of The Tax Institute at H&R Block.
"Often, the IRS may request additional information or paperwork. A
timely response by the taxpayer could mean the difference between
owing extra tax or being able to justify claiming the valuable tax
break. That is why being able to substantiate what is on the tax
return is very important, so be sure to keep organized financial
records supporting those tax breaks."
Who is being audited and why?
The profile of a potential audit candidate has shifted from the rich
to include people who make far more modest incomes. Of the more than
1.5 million audits conducted in 2011, 2 in 3 were of people who made
$50,000 or less. Following are some common reasons the IRS contacts
-- Unreported income, inconsistencies - the surest way to get a letter
from the IRS is to not report all income
-- A document-matching program makes it easy for the IRS to check
income reported on tax returns against what is reported by
employers, banks, brokers, etc.
-- The IRS also compares deductions taken by taxpayers in the same
income bracket to find inconsistencies in areas including mileage
and charitable donations
-- Claims for expenses not allowable and a majority of cash business
self-reported transactions on the Schedule C
-- Eligible expenses can include advertising, insurance, legal
services, vehicle expenses, employee wages and taxes, home office
expenses and depreciation.
What should a taxpayer do when contacted by the IRS?
While tax season is January through mid-April, audits are conducted
year round. The IRS may contact a taxpayer as late as three years
from the filing date. However, contact may be very soon after the
return is filed if an item is flagged for some reason.
Taxpayers who get an audit notice in the mail should contact their
tax professional immediately as delays could result in additional
penalties and fees. Most audits are correspondence audits conducted
via mail; resolving the matter may be as simple as sending supporting
documentation to the IRS. In any case, it is important to respond to
the notice promptly. If a face-to-face meeting is required, some
taxpayers may elect to have their representative attend without them.
In the end, if the taxpayer disagrees with the auditor's findings,
the results of the audit may be appealed.
"Being prepared for an audit means understanding what is being asked
of you, providing that information only and often getting
professional help," Pickering said.
H&R Block's tax professionals prepare and sign their clients' tax
returns, guaranteeing accuracy and the maximum refund. In-office
preparation services include Second Look(R) reviews and Block
Live(SM), the industry's only video tax preparation solution. H&R
Block At Home(TM) gives do-it-yourself filers the expertise and
guidance of The Tax Institute at H&R Block on their computers, iPads
and smartphones. The new My H&R Block Account lets taxpayers upload
receipts and other important tax season documents securely, to one
place, year-round, for free. The company offers affordable financial
products and services through H&R Block Bank, and keeps its offices
open and tax conversation going with clients year-round via blogs,
tweets and Facebook.
Regardless of who prepares tax returns, taxpayers are legally
responsible for the contents. To find the nearest H&R Block office,
visit www.hrblock.com or call 800-HRBLOCK.
About H&R Block
H&R Block, Inc. (NYSE: HRB) is the world's largest
tax services provider. More than 600 million tax returns have been
prepared worldwide by and through H&R Block since 1955. In fiscal
2012, H&R Block had annual revenues of $2.9 billion with 25.6 million
tax returns prepared worldwide. Tax return preparation services are
provided in company-owned and franchise retail tax offices by
approximately 90,000 professional tax preparers, and through H&R
Block At Home(TM) digital products. H&R Block Bank provides
affordable banking products and services. For more information, visit
the H&R Block Online Press Center.
About The Tax Institute at H&R Block
The Tax Institute at H&R Block
is the go-to source for objective insights on federal and state tax
laws affecting the individual. It provides nonpartisan information
and analysis on the real world implications of tax policies and
proposals to policymakers, journalists, experts and tax preparers.
The Institute's experts include CPAs, Enrolled Agents, tax attorneys
and former IRS agents. Building off more than 10 years of research
and analysis from a specialized tax research group at H&R Block, the
company launched The Tax Institute in 2007.
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