Tax Brake with Robert G. Nath, Esq.

AUDITS

Over 1 million "lucky" people lose the "audit lottery" each year. But audits are nothing to be feared. They come in all shapes and sizes. Some are "correspondence audits," where you work out a minor issue by writing letters back and forth. Others are "office audits," where you come to the IRS' office and resolve the matter. Full field audits are more complicated, but those too can be worked successfully.

Probably the most important rule to remember in any audit is to be courteous, business-like and truthful with the agent. Supply what the agent requests in a form the agent can understand, and on time. If you need professional help, such as from an accountant, enrolled agent, or a lawyer, tell the agent and then get the help as quickly as you can. Keep every piece of paper you possibly can--they may come in handy to prove expenses in an audit later on.

If you and the agent disagree and simply can't come to terms, you can always appeal the agent's recommended findings to the "Office of Appeals." Often these appeals result in settlements; so for very little cost, you've reduced an otherwise large tax bill. Ask the agent about your appeal rights, and he or she will be glad to tell you.

TAX LITIGATION

If your case stays civil and all else fails, you can sue the IRS in court, and also often win. You can appeal a tax case to at least three different court systems, sometimes four. It is wise to have a lawyer represent you in these courts, but it is not mandatory. In the Tax Court in particular, about half the cases are "pro se," with the taxpayer acting as his or her own lawyer.

THE IRS IN YOUR EVERYDAY LIFE

With any luck, most of us will never see an IRS audit or face the collection division. There are many ways to keep the IRS out of your hair, or at least not put out the welcome mat.

If you own a business, keep careful, detailed records, especially of cash transactions. Separate your business from your personal life even if you are a "sole proprietor." Keep separate books of account, separate bank accounts, etc. File your returns on time, taking every deduction you're entitled to, but taking care to present them correctly on the return.

Keep records a minimum of four years, sometimes longer if they relate to long-term assets like stocks, bonds, your home, etc.

Above all else, do not be afraid of the IRS. IRS agents are people just like you and me. They have the same strengths and flaws. Treat them with courtesy and respect and you will get the same courtesy and respect in return. They have a job to do; so do you. But you can and should face them on an equal playing field because you have many rights the agents are required to respect. Use them, and you will usually emerge intact.

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