Case Study: Internal Revenue Service
Normally the Internal Revenue Service conducts audits to a significant percentage of spaying citizens each year, this audits are perform to verify certain variances within the tax law and codes. The Individual being audited does have a burden on demonstrating to the IRS auditors that the information on their tax returns was accurate, that Income was properly reported, and that tax credits and deductions were properly and legally taken. In this case the taxpayer elected to not appear for the meeting because he wanted to go skills rather than the preset appointment.
In this case the best approach to IRS examination is to promptly and fully cooperate from the outset, it will show them a good faith.
According to the scenario shown here he failure the appointment, and he didn’t contact to examiner office right away to re-schedule. He needs representation, whereby he should fill out and sign a form 2848, power of attorney and declaration of representative, authorizing the CPA to represent him before the IRS, which in this case would be Sue Johnson, CPA.
He definitely would need to bring all supporting documentation to substantiate the deductions, relating to travel expenses, entertainment expenses, and charitable contributions. Considering the travel expenses for tax purposes, travel expenses are the ordinary ND necessary expenses Incurred while traveling away from home for your business, profession, or Job. It Is considered that you are traveling away from home If duty requires you to be away from the general area of you tax home for a period longer than one days work, and you need to get sleep or rest while you are away.
Self-employed taxpayers deduct travel expenses for GAG as trade or business expenses. Unimpressed employee travel expenses are deductible from GAG as miscellaneous Itemized deductions, subject to the 2% floor. Jonathan as taxpayer must substantiate expenditures for travel expenses by adequate records or by sufficient evidence corroborating the taxpayer’s statement as to: amount, time and place, business purposes, and business relationship to the taxpayer.
The entertainment expenses, which must be ordinary and necessary and related to ten Dustless, en can acute tense expenses I T en NAS Tort entertainment a client, customer or employee. The deduction has to meet the following test: – Directly -related test – Associated test Directly Related test To be deductible under this test you must be able to show – You had more than general expectation of a specific business benefit or getting income at a future time. You engaged in business with the person being entertained during the entertainment period.
– The main purpose of the entertainment was actively conduct business.
Associated test To be deductible under this test must be able to show – The entertainment was associated with the active conduct of your trade or business. – The entertainment directly preceded or followed a substantial and bona fide business discussion. In general only 50% of your business-related meal and entertainment expense can be deduct. Charitable contributions are contributions made to “qualified domestic organizations” by individuals and corporations.
Payments to individuals are never deductible. Qualified charitable organizations are divided into two categories: public and privates charities.
In addition to deducting cash contributions Jonathan has to maintain records or receipts from the receiving organization. Is very important he needs to demonstrate with the receipts that all contributions were made to qualified organizations. The records must contain name of the organization, date of the contribution and the amount. Charitable contributions are deductible only if you itemized deductions.
According to the tax laws a 20% penalty could be imposed to Jonathan for underpayment of tax due to negligence or disregard of rules and regulations. Code 6662(a).
The term “negligence” includes any failure to make reasonable attempt to comply with the provision of the code, and the term ” disregard” includes any careless, reckless, or intentional disregard. Moreover, Sue Johnson CPA, could be subject to penalties if in preparing a tax return with understatement of a tax liability, takes a frivolous position or one for which there is not realistic possibility of being sustained on its merits, the penalty is greater of $1000 or 50 percent of the income derived by the tax return preparer with respect to en return. Coco sec. 6 ) 2- IT Jonathan ultimately doesn’t agree Witt ten Telling of the IRS, what are his options? If Jonathan have submitted all his documentation, and he is not agree with the proposed adjustment he can request a conference with a manager or request that his case be sent to appeals, if an agreement is not reached or Jonathan no respond, the IRS will send a statutory notice of deficiency by certified mail.
He has 90 days from the date on the notice to petition the U. S Tax Court without paying the tax. But if an agreement is not reached the tax will be assessed.