Seeing Inside the Mind of the IRS

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Image courtesy of Valerie Colin at gscpa.com

Using the IRS Audit Technique Guidelines (ATGs)

While most of us are never audited, when it happens it can feel a lot like a lamb thrown in the room with a lion. The IRS auditor does these audits every day. They know what to look for and can ask leading questions that you may easily answer incorrectly. So what are some good tips when you are in the cross-hairs of an IRS audit?

  • Address correspondence issues with the IRS timely. Do not let the problem get to a point that a face-to-face examination is required.

 

  • Ask for help. Do this right away. Too many clients think the problem is easy to resolve, but inadvertently say the wrong thing or open another audit issue inadvertently.

 

  • Understand what is being asked. Clearly understanding the core question can simplify the solution. Why is the IRS asking to see your 1099’s? Do they have a form that you do not? Why are they asking about your small business profits? Are they thinking your business is a hobby?

 

  • See the Audit the way the IRS auditor is trained to see it. The IRS has certain areas in which they focus training for their auditors. These are published in Audit Technique Guides (ATGs) and are available for review on their web site at www.irs.gov. They are invaluable in identifying areas for potential audits AND can help you understand what the IRS likes to question. While most of the ATGs are in the business area, reviewing the topics can be useful in understanding where audit risks are and what you can do to prepare yourself in case of an audit.

 

Common ATGs

  • Architects
  • Business Consultants
  • Child Care Provider
  • Farmers
  • Ministers
  • Veterinary Medicine
  • Art Galleries
  • Capitalization versus Repairs
  • Construction
  • Hobbies (activity not engaged for profit)
  • Partnerships
  • Winery/Vineyards
  • Attorneys
  • Cash Based Business
  • Research Credits
  • Lawsuit Awards/Settlement
  • Retail

 

If you have activity in one of these areas, it may make sense to understand what the IRS auditor is trained to look for prior getting too far into the audit process. By reviewing the specific ATG you will know the process of the IRS audit and understand how the auditor will proceed.

Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.

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