Besides flagrant errors and intentional lies, four innocent mistakes often attract the attention of the IRS or your state. Should you make one of these mistakes, you need an “audit trail” and filing record ready to prevent the initial investigation from becoming a full-blown audit. Let’s cover the red flags first and disaster prevention second.
- 4361 Exemptions
Using software, IRS and state revenue departments can now parse tax returns without any manual work. They automatically flag inconsistencies and oddities for further investigation. 4361 exemptions stand. Make sure you have a copy of your approved 4361 Exemption.
- Occasional Filing
Occasional filing increasing the chances that you miss a filing deadline or make errors, your attempt to file as an occasional filer invites suspicion. Consider filing as a regular basis.
- Handwritten Returns
With a handwritten return, there is a chance you will mess up calculations or input the wrong data, no matter how experienced you are. Software is not perfect, but it eliminates many human mistakes, like forgetting to write a signature. Harmless errors or unreadable handwriting can cause an auditor to review your return. You never know what he will find.
- Large Refunds
The IRS and most states have an undeclared threshold for tax refunds. If you’ve filed for a $500 tax refund in the past, and one day you request a $5,000 refund, auditors will review it. Make sure that you have all the documents necessary to support the request for refund.
Here’s the good news about auditors though: they are fair and listen. They’re not trying to nail you. If you’re courteous, professional and timely, auditors will treat you respectfully. The key is to be prepared for any questions and they may ask.
To do this, create an “audit trail.” Meticulously document every expense. Assume that an auditor will ask to see how you calculated each deduction or transaction.
Bottom line: be inconspicuous, but be gracious if you get approached by an auditor.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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