Friday 20 May 2016

The Examination (Audit) Process IRS

The Examination (Audit) Process

FS-2006-10, January 2006
The IRS examines (audits) tax returns to verify that the tax reported is correct.
Selecting a return for examination does not always suggest that the taxpayer has either made an error or been dishonest. In fact, some examinations result in a refund to the taxpayer or acceptance of the return without change.
The overwhelming majority of taxpayers files returns and make payments timely and accurately. Taxpayers have a right to expect fair and efficient tax administration from the IRS, including verification that taxes are correctly reported and paid with enforcement actions against those who fail to comply voluntarily.
Taxpayer Rights
The IRS trains its employees to explain and protect taxpayers’ rights throughout their contacts with taxpayers. These rights include:
  • A right to professional and courteous treatment by IRS employees.
  • A right to privacy and confidentiality about tax matters.
  • A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
  • A right to representation, by oneself or an authorized representative.
  • A right to appeal disagreements, both within the IRS and before the courts.
How Returns Are Selected for Examination
The IRS selects returns using a variety of methods, including:
  • Potential participants in abusive tax avoidance transactions — Some returns are selected based on information obtained by the IRS through efforts to identify promoters and participants of abusive tax avoidance transactions. Examples include information received from “John Doe” summonses issued to credit card companies and businesses and participant lists from promoters ordered by the courts to be turned over to the IRS.
  • Computer Scoring — Some returns are selected for examination on the basis of computer scoring.  Computer programs give each return numeric “scores”. The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns. The Unreported Income DIF (UIDIF) score rates the return for the potential of unreported income. IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.
  • Large Corporations — The IRS examines many large corporate returns annually.
  • Information Matching — Some returns are examined because payer reports, such as Forms W-2 from employers or Form 1099 interest statements from banks, do not match the income reported on the tax return.
  • Related Examinations — Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for examination.
  • Other — Area offices may identify returns for examination in connection with local compliance projects. These projects require higher level management approval and deal with areas such as local compliance initiatives, return preparers or specific market segments.
Examination Methods
An examination may be conducted by mail or through an in-person interview and review of the taxpayer's records. The interview may be at an IRS office (office audit) or at the taxpayer's home, place of business, or accountant's office (field audit). Taxpayers may make audio recordings of interviews, provided they give the IRS advance notice. If the time, place, or method that the IRS schedules is not convenient, the taxpayer may request a change, including a change to another IRS office if the taxpayer has moved or business records are there.
The audit notification letter tells which records will be needed. Taxpayers may act on their own behalf or have someone represent or accompany them. If the taxpayer is not present, the representative must have proper written authorization. The auditor will explain the reason for any proposed changes. Most taxpayers agree to the changes and the audits end at that level.
Appeal Rights
Appeal Rights are explained by the examiner at the beginning of each audit. Taxpayers who do not agree with the proposed changes may appeal by having a supervisory conference with the examiner’s manager or appeal their case administratively within the IRS, to the U.S. Tax Court, U.S. Claims Court or the local U.S. District Court. If there is no agreement at the closing conference with the examiner or the examiner’s manager, the taxpayer has 30 days to consider the proposed adjustments and their next course of action. If the taxpayer does not respond within 30 days, the IRS issues a statutory notice of deficiency, which gives the taxpayer 90 days to file a petition to the Tax Court. The Claims Court and District Court generally do not hear tax cases until after the tax is paid and administrative refund claims have been denied by the IRS. The tax does not have to be paid to appeal within the IRS or to the Tax Court. A case may be further appealed to the U.S. Court of Appeals or to the Supreme Court, if those courts accept the case.
Related Items:

Syllabus
Federal Income Tax: Individual

Syllabus Sections

Publish Date

01/18/2013 18:29:03

Federal Income Tax: Individual

ACNT-1331
Spring 2013
02/11/2013 - 05/12/2013

Course Information

Section 001
Distance Learning
ONL NRG
Jay Thibodeaux
jthibode@austincc.edu
(512) 223.4990
Section 003
Distance Learning
ONL NRG
Jay Thibodeaux
jthibode@austincc.edu
(512) 223.4990

Office Hours

No office hours have been entered for this term

COURSE SUBJECTS

Course Description: This course include basic instruction in the tax laws as currently implemented by the Internal Revenue Service, providing a working knowledge of preparing taxes for individuals. Emphasis on federal income tax law; individual income, exclusions, deductions, credits, gains, etc.; and incorporating these concepts into individual tax filing requirements.

STUDENT LEARNING OUTCOMES/LEARNING OBJECTIVES

Course Objectives:
  1. Identify the determinants of taxable income and the statutory exclusions that are permitted,
  2. Become familiar with the deduction component of the basic tax model,
  3. Learn various other components that relate to the theme of tax liability determination,
  4. Understand the purposes of the Federal tax law and the legislative, administrative, and judicial sources of Federal tax law, and
  5. Research and report on assigned tax questions.

READINGS

Required Textbook/Materials:
South-western Federal Taxation 2013: Comprehensive(with Aplia Homework Access, H&R Block @ Home Tax Preparation Software, RIA Checkpoint 12-month Printed Acces Card for 2013 Tax Titles, CPA Excel), 35th Edition. Hoffman/Maloney/Raabe/Young. Approximate price: $340; ISBN:9781285047058

Optional Textbook/Materials:
  1. South-western Federal Taxation 2013: Comprehensive Study Guide; Hoffman, Smith, Willis; South-Western Federal Taxation I recommend the study guide if you will use it. It's a great tool for reviewing the material in the chapters.
  2. I suggest that you purchase a CPA Review book for the Regulation section of the CPA Exam. This will help with preparing for the exams. Some examples are Gleim CPA Review Regulation 2012 (or newer), Wiley CPA Exam Review Regulation 2012 (or newer).

COURSE REQUIREMENTS

Your grade will be based on the following:
     

Exams (3)
75 %
Quizzes (4)
15 %
Aplia Homework
5 %
Tax Returns & Research
5 %

GRADING SCALE:                                                 90% - 100%         A
                                                                                80% -  89%           B    
                                                                                70% -  79%           C    
                                                                                60% -  69%           D
                                                                                Below 60%          F


TOPIC
* Homework
OrientationBlackboard: Orientation Quiz
Aplia: Aplia Orientation
Chapter 1: An Introduction to Taxation and Understanding the Federal Tax LawAplia: Chapter 1 Practice
Aplia: Chapter 1 Graded
Chapter 2: Working with the Tax LawAplia: Chapter 2 Practice
Aplia: Chapter 2 Graded
Quiz: Chpt 1 – 2
Chapter 3: Tax Formula and Tax Determination; An Overview of Property TransactionsAplia: Chapter 3 Practice
Aplia: Chapter 3 Graded
Blackboard: RIA Scavenger Hunt
Chapter 4: Gross Income: Concepts and InclusionsAplia: Chapter 4 Practice
Aplia: Chapter 4 Graded
Blackboard: Research Problem
Chapter 5: Gross Income: ExclusionsAplia: Chapter 5 Practice
Aplia: Chapter 5 Graded
Chapter 6: Deductions and Losses: In GeneralAplia: Chapter 6 Practice
Aplia: Chapter 6 Graded
Quiz: Chpt 3, 4, 5, and 6

Exam 1: Chpt 3, 4, 5, and 6
Chapter 7: Deductions and Losses: Certain Business Expenses and LossesAplia: Chapter 7 Practice
Aplia: Chapter 7 Graded
Blackboard: Tax Return 1
Chapter 8: Depreciation, Cost Recovery, Amortization, and DepletionAplia: Chapter 8 Practice
Aplia: Chapter 8 Graded
Chapter 9: Deductions: Employee and Self-employed-related ExpensesAplia: Chapter 9 Practice
Aplia: Chapter 9 Graded
Chapter 10: Deductions and Losses: Certain Itemized DeductionsAplia: Chapter 10 Practice
Aplia: Chapter 10 Graded
Exam 2: Chpt 7, 8, 9, and 10
Chapter 11: Investor LossesAplia: Chapter 11 Practice
Aplia: Chapter 11 Graded
Blackboard: Research Problem
Chapter 12: Tax Credits and PaymentsAplia: Chapter 12 Practice
Aplia: Chapter 12 Graded
Chapter 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable ExchangesAplia: Chapter 13 Practice
Aplia: Chapter 13 Graded
Blackboard: Tax Return 2
Chapter 14: Property Transactions: Capital Gains and Losses, Section 1231 and Recapture ProvisionsAplia: Chapter 16 Practice
Aplia: Chapter 16 Graded
Quiz: Chpt 11, 12, 13, and 14
Exam 3: Chpt 11, 12, 13, and 14
* Instructions for each type of assignment:
Aplia – Homework will be completed and submitted in Aplia.
Practice: Practice assignments are not required. However, by completing the practice assignments you will be better prepared to complete the graded assignment.
Graded: Graded assignments are required and will part of your final course grade.
Blackboard– Homework will be completed and submitted in Blackboard. Homework must be submitted in any of the following formats: .doc, .docx, .rtf, or .pdf. Homework submitted in any other format will not be graded.
Quiz– Quizzes will be completed in Blackboard. Quizzes are not timed. You may use your book and notes. You may save and exit quiz as many times as needed up until due date.
Exam – Exams will be taken in the testing center.  No book and notes allowed. More information about the exams is provided in the blackboard site. 

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