GROCO Tax Ninja
got problems with the IRS? you know who to call.

By Alan L. Olsen, CPA, MBA (tax)
Managing Partner
Greenstein Rogoff Olsen & Co. LLP

So you are under audit with the IRS or the Franchise Tax Board. Thinking about representing yourself? I suggest that you think again. As a former IRS agent, some of the easiest adjustments came from individuals representing themselves. Simply put, I would ask questions and then listen to responses. Within the first 15 minutes, I would have enough information in my arsenal to make the person turn over some more tax dollars.

I remember the contractor that I visited at his onsite office location. As I walked through the office, I saw a computer in the office. I said, “Nice computer”. The contractor then responded that he never knew how to really use the computer except for playing games.

Unknowingly, this contractor just admitted that he was not entitled to $3,000 worth of deductions.

Just in case you are still set on representing yourself, then I suggest these strategies for handling the IRS audit:

1. You should understand the procedures for the IRS audits and appeal procedures.

2. Do not volunteer information to the IRS and pretend to be helpful.

3. The IRS will be focused on certain items in your return, stick with the issues under audit, and provide the agent with proper documentation for the expense or income item claimed.

4. Do not allow the IRS to go on fishing expeditions into areas that fall outside the audit.

5. If your return was prepared wrong, discuss the situation with a qualified professional. We all make mistakes. If the mistake was innocent, then admit the mistake and go on.

For help with representing yourself before the IRS, contact us at 510-797-8661 or www.groco.com.
_____________________________________________________________________
Alan L. Olsen is Managing Partner at Greenstein, Rogoff, Olsen & Co., LLP, a leading CPA firm in the San Francisco Bay Area. With more than 25 years of experience in public accounting, Alan works with some of the most successful venture capitalists in the world, developing innovative financial strategies for individuals and businesses. Olsen is also host of KDOW’s American Dreams: Keys to Life’s Success Radio Show.

By Alan L. Olsen, CPA, MBA (tax)
Managing Partner
Greenstein Rogoff Olsen & Co. LLP

Many people often ask the question, “What can I do to avoid an IRS Audit?” So how can you dodge the bullet during the auditing selection process? Although there is no way to completely avoid being selected for an IRS audit, there are steps you can take to minimize the likelihood.

1. Be honest - Living by the simple rule of honesty will save a lot of stress. Report all income including; unreported interest, dividends or miscellaneous income. The IRS has record of all your 1099s, so be sure to report them. Omitting income will raise a red flag. Be sure to properly report all your expenses and deductions.

2. Be organized - Keeping good records is important. Properly record any expenses that will be deducted. Business expenses such as travel, meals, mileage etc. can be deducted, as long as they have been recorded. Keep all receipts, they will help to prove an accurate deduction. Be sure to give exact numbers versus rounding. When it’s time to submit your return, double check and make sure there is no missing information or signatures.

3. Be prepared if you are self-employed – The IRS realizes that self-employment also increases the likelihood of unreported income. You must have proof of all income and business expenses if you are self-employed. Do not record personal expenses as business deductions.

4. Watch your deductions - Taking deductions that are unreasonable for your income bracket may raise a red flag to the IRS. The IRS uses a computer to select returns to audit. This computer gives each tax return a score and your score is compared to others within your income bracket. High scores result from unrealistic deductions within certain tax brackets. High score returns are passed on to an IRS agent for review. Be sure you have proof to back up all deductions.

5. Avoid Fluctuation in Income – The IRS has a good idea of how much you make; if they notice a drastic change in your income this may raise another red flag. Be aware of reporting abnormally low income for your profession. On the flip side, be extra cautious if your income is over $100,000. IRS audits are 5 times more likely in this tax bracket.

6. Watch your Number of Charitable Contributions – Charity is important, but be aware that a red flag may arise if you made a lot of contributions. Hold on to all receipts, particularly if donating five times as much as the average person in your income bracket.

7. Use a Tax Professional – The best way to prevent or avoid an IRS audit is to use a CPA or accounting professional. These returns are often less likely to be selected for an IRS audit than a self-prepared return. A professional knows the laws and can help you to make sure that all proper deductions are taken and that all income is reported.

Taking these steps in preparing your return can help you to avoid possible red flags that could lead to an IRS audit.

Alan L. Olsen is Managing Partner at Greenstein, Rogoff, Olsen & Co., LLP, a leading CPA firm in the San Francisco Bay Area. With more than 25 years of experience in public accounting, Alan works with some of the most successful venture capitalists in the world, developing innovative financial strategies for individuals and businesses. For information on filing your tax return this year, contact Alan at 866-CPA-2006 or at www.groco.com.

By Alan L. Olsen, CPA, MBA(tax)
Managing Partner
Greenstein, Rogoff, Olsen and Co., LLP

Expensive art collections, investment hobbies and offshore bank accounts may raise red flags when it comes to IRS audits. In 2011, the Internal Revenue Service audited 29.93% of taxpayers who reported more than $10 million of annual income [1]. This percentage increased by 18.38% from 2010.

Although there is no way to completely avoid being selected for an IRS audit, there are steps you can take to minimize the likelihood of an audit.

1. Be honest – Living by the simple rule of honesty will save a lot of stress. Report all income including; unreported interest, dividends or miscellaneous income. The IRS has record of all your 1099s, so be sure to report them. Omitting income will raise a red flag. Be sure to properly report all your expenses and deductions.

2. Be organized – Keeping organized records is important. Properly record any expenses that will be deducted. Business expenses such as travel, meals, mileage etc. can be deducted, as long as they have been recorded. Keep all receipts, they will help to prove an accurate deduction. Be sure to give exact numbers versus rounding. When it’s time to submit your return, double check and make sure there is no missing information or signatures.

3. Be prepared if you are self-employed – The IRS realizes that self-employment also increases the likelihood of unreported income. You must have proof of all income and business expenses if you are self-employed. Do not record personal expenses as business deductions.

4. Watch your deductions – Taking deductions that are unreasonable for your income bracket may raise a red flag to the IRS. Be sure you have proper records for proof of all of your deductions.

5. Avoid Fluctuation in Income – The IRS has a good idea of how much you make; if they notice a drastic change in your income this may raise another red flag. Be aware of reporting abnormally low income for your profession. On the flip side, be extra cautious if your income is over $100,000. IRS audits are 5 times more likely in this tax bracket.

6. Watch your Number of Charitable Contributions – Donating to charities is important, but be aware that a red flag may arise if you have made a lot of contributions. Hold on to all receipts, particularly if you are donating five times as much as the average person in your income bracket.

7. Use a Tax Professional – The best way to prevent or avoid an IRS audit is to use a CPA or accounting professional. These returns are often less likely to be selected for an IRS audit than a self-prepared return. A professional knows the laws and can help you to make sure that all proper deductions are taken and that all income is reported.

Taking these steps in preparing your return can help you to avoid possible red flags that could lead to an IRS audit.

[1] “IRS Audit Rate nears 30% for Those Making $10 Million and Up.” Bloomberg. Mar. 2012. Web. Sept. 2012. http://www.bloomberg.com/

____________________________________________________________________
Alan L. Olsen is Managing Partner at Greenstein, Rogoff, Olsen & Co., LLP, a leading CPA firm in the San Francisco Bay Area. With more than 25 years of experience in public accounting, Alan works with some of the most successful venture capitalists in the world, developing innovative financial strategies for individuals and businesses. Olsen is also host of KDOW’s American Dreams: Keys to Life’s Success Radio Show.

By Alan L. Olsen, CPA, MBA (tax)
Managing Partner
Greenstein Rogoff Olsen & Co. LLP

As pressure from Congress to raise revenue and close the multi-billion dollar “tax gap” continues, the Internal Revenue Service is increasing the number of audits against high-net-worth individuals.

The IRS, as a result of increased funding and directives from Congress, is currently hiring a vast number of tax auditors and collectors, and creating special new units to use a wide spectrum of tactics for investigating wealthy taxpayers for tax compliance. A recent article in the New York Times reported that taxpayers who earned at least $1 million had an 8 percent chance of being audited in 2009, meaning roughly one out of every 12 returns was scrutinized. That’s up from 6 percent in 2008.

Most U.S. citizens take great pride in paying as little tax as legally possible, and they will pay good money for this right. But as the government tries to squeeze taxpayers for more than what they perceive as fair, animosity will begin to build, sometimes with catastrophic results. (To be fair, this deficit-reduction strategy can be found in areas represented by both sides of the aisle, and on the state level as well.)

If you receive an audit notice from the IRS, here are six things you should know to move forward:

Don’t panic. Many of these letters can be dealt with simply and painlessly. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.

Follow the Instructions. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry. If you receive a correction notice, review the correspondence and compare it with the information on your return.

Don’t Put It Off. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

If You Have Questions, Call. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

Keep Careful Records. It’s important that you keep copies of any correspondence and a log of any telephone calls with your tax records.

Get Expert Advice. If you dispute the IRS findings and need help in resolving the matter, get in touch with an attorney or certified public accountant who has a track record of success dealing with IRS audits.

Alan Olsen is Managing Partner, Greenstein, Rogoff Olsen & Co. LLP, CPAs. Alan is a former IRS auditor who now specializes in tax preparation and consulting for high-net-worth individuals. He has successfully represented some of the most successful entrepreneurs in the world in IRS audits. Read more at www.GROCO.com.

Do you want to minimize your chance of being selected for an IRS audit? There is no way to completely avoid being selected for an IRS audit however; there are tips that you can follow to minimize your likelihood of being audited.

Below are six tips to lessen the chance of your return being selected for an IRS audit:

1. Be honest-If you live by the simple rule of honesty, it will save you a lot of stress. It is wise to see that all of your expenses and deductions are true when recorded on your tax return. Mistakes happen, but avoid intentional ones.
2. Be organized-It is important to keep good records. Properly record any expenses that you are deducting on your tax return. Business expenses such as travel, meals, mileage etc. can be deducted, as long as they have been recorded.  If the expense is minimal, a simple note written in a notebook or on a spreadsheet will work, but if the expense is large, keep the receipt. A receipt will help to prove an accurate deduction.
3. Report all interest- Collect all appropriate tax documents when your tax return is prepared. If your bank or other investment companies have not sent you 1099s for interest on accounts, contact them. The IRS has record of these documents and so you need to record them on your tax return.
4. Be prepared if you are self-employed-The IRS realizes that self-employment also increases the likelihood of unreported income. You must have proof of your income and business expenses if you are self-employed. You should not record personal expenses as business deductions.
5. Watch your deductions-If you take deductions that are unreasonable for your income bracket, this may raise a red flag to the IRS. The process that the IRS uses to select returns to audit starts with the IRS computer. The IRS computer gives each tax return a Discriminate Function Score (DIF score). During this process, the deductions that you take are compared to other scores within your income bracket. High scores result from unrealistic deductions within certain tax brackets. If a return receives a high score, it will be passed on to an IRS agent for review to see if any additional tax can be collected. If your deductions seem a bit unrealistic, you should have proof to back them up.
6. Use a tax professional-A tax return that is prepared by a CPA or other accounting professional is less likely to be selected for an IRS audit than a self-prepared return. A professional knows the laws and can help you to make sure that all proper deductions are taken and that all income is reported.

Taking these steps in preparing your return can help you to avoid possible red flags that could lead to an IRS audit.

Greenstein, Rogoff, Olsen & Co. (GROCO®) is the trusted financial advisor to the venture capitalists who helped build companies such as Google, Skype, America Online, Oracle, Sun Microsystems, Compaq, Macromedia, eBay, and Genentech. Consistently ranked as one of the top accounting firms in the Bay Area, our firm provides consulting services and accounting services to high net-worth individuals and closely-held businesses. www.groco.com

This Wall Street Journal article explains how facebook and myspace postings are being read by the IRS:

http://online.wsj.com/article/SB125132627009861985.html?mod=dist_smartbrief

To learn more about other tax issues, please visit www.groco.com.

By Alan L. Olsen, CPA, MBA (tax)
Managing Partner
Greenstein Rogoff Olsen & Co. LLP

The IRS recently announced plans to launch a new National Research Program (NRP) compliance study for individual taxpayers. The IRS is preparing to increase the number of audits and to step up its compliance programs. The IRS is currently hiring 100,000 auditor to step up its compliance program.  The study will start in October 2009 and examine about 13,000 randomly selected individual returns for the 2008 year.The IRS is using new technology to process tax returns and conduct the new tax audits. As more people are submitting returns through Electronic Filing, the IRS efficiency in processing returns is improving. They also have more data in their system to identify tax returns with non-compliance issues. The IRS will use new found technology for audit selection which will support the efforts to close the nation’s tax gap. The tax gap is the difference between what the taxpayers should have paid and what they actually paid on a timely basis. The most recently released numbers on the tax gap are in 2001 when the estimate was around a $290 billion short fall to the IRS.The current workload plans will combine results over a three-year period and will allow the IRS to update compliance estimates and develop more efficient workload plans on an annual basis.It is important to be properly prepared if you are chosen to be audited. If the IRS finds that there is no change to your tax liability in the audit, then you will not have to worry about being audited on the same issue for two years.

Steps to take if selected for audit

1. Set the ground rules

Make sure to inform your client of the procedures that come along with an IRS audit.

2. Establish the location where the IRS auditor will work.

When there is no business location for an individual return the audit will take place at the IRS office. If the audit is for a business the IRS agent will most likely want to conduct it at the business, however the tax preparer’s office is the best location for the audit to take place. You will be able to best control information provided to the auditor when it is coming from your office.

3. Determine who will speak for the taxpayer.

IRS agents may turn any casual conversation against the taxpayer, so it is important that the taxpayer and auditor are not in direct communication with each other. In this way you are in charge of the information that is communicated between your client and the agent.

4. Ensure that all document requests will be in writing.

Make sure that the IRS agent understands that any document requests should be made in writing so that you will have enough time to gather the needed information to support deduction claims.

5. Questions and discussion of adjustments should not be negotiated until the final conference.

When you defer questions until the last meeting it puts you in a better position to negotiate as you will have a better understanding of the IRS audit and the information that is needed. It will also eliminate the possibility of an auditor conceding certain issues if they are pressed for time.

6. Agree to an Extension

If you have not gathered all of the information that is necessary for the audit, but think that you have access to it, agree to an extension. There are two types of extensions that you can request:

1. Form 872- IRS limits the extension to issues only addressed on the form
2. Form 872-a The IRS can keep all issues open

7. Refuse to Agree to an Extension

You do not have to agree to an extension if all of the issues have not been properly addressed by the IRS and you want to close the case. This will force the IRS auditor to issue a report. You can then either file a petition in the tax court or pay the tax and then file a petition with the court of claims.

8. Request Technical Advice

You can always request technical advice from the IRS national office if you feel that the IRS appeals officer will not compromise and that their position contradicts the national office. If the national office agrees with the inconsistency in opinions, than the appeals officer will have to follow the national office. If the national office does not agree with your claim, then you will have to continue onto the court system.

9. Negotiate

Make a settlement agreement that fairly resolves the case, as some areas in tax laws are subjective. In some multi-issue cases you may want to present a bottom line offer that may change depending on issues that arise later.

10. Consider filing an amended return or making a cash bond.

The best way to avoid IRS audits, is to simply work with your client to make sure that the tax return has no reason to be audited by the IRS. It is not often that IRS audits take place. In 2006, 1,293, 681 audits were conducted for individual returns, but the numbers are continuing to rise. Remember that preparation is one of the best defenses that you will have against any IRS audit.

Greenstein, Rogoff, Olsen & Co. (GROCO®) is the trusted financial advisor to the venture capitalists who helped build companies such as Google, Skype, America Online, Oracle, Sun Microsystems, Compaq, Macromedia, eBay, and Genentech. Consistently ranked as one of the top accounting firms in the Bay Area, our firm provides consulting services and accounting services to high net-worth individuals and closely-held businesses. www.groco.com