IRS Correspondence Audits

The Compliance Center computers are programmed to select those returns with high DIF scores which reflect issues that could be easily resolved by mail. The computers select those returns which are appropriate for correspondence audits and each respective return is reviewed by either a Tax examiner or clerk. The returns are DIF screened and quality reviewed using technically proficient examination personnel who are experienced in DIF screening operations. Returns which have apparent examination issues other than those appropriate for correspondence audit are referred to the local Area Office. Some examples of the kinds of items which can be verified by correspondence are itemized deductions, such as interest, taxes, contributions, medical expenses, and simple miscellaneous deductions such as union dues and small tools. Issues other than itemized deductions may be examined if they are single matters which would not be appropriate for office audit or field examination.

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Cancellation of Debt

If a debt is canceled or forgiven, other than as a gift or bequest, the debtor generally must include the canceled amount in gross income for tax purposes. A debt includes any indebtedness for which the debtor is liable or which attaches to property the debtor holds.

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Gambling and Taxes

Gambling and Taxes = The Price of Winning By: Robert E. McKenzie ©2011   Custom Search   Inclusion of Gambling Income in Gross Income  Income from gambling,[1] lotteries,[2] sweepstake winnings,[3] and card playing[4] are included in gross income. Such income…

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Nonfilers

A tax practitioner is frequently confronted with the following question when giving a client a return with a balance due on it: “Should I file the return right now, or wait until I have the money to pay it?”

The answer is very simple. File it as soon as possible! If your client has any money at
all available for payment, it should be enclosed with the return. The reason for such
advice is that one of the largest penalty rates which the IRS is allowed to impose is for
late filing of a return. The penalty is five percent per month, up to a maximum, of 25%, of the tax due but unpaid by the due date of the return, which works out to be an annualized rate of 60%. Therefore, if your client fails to file the return on time there is an effective annual rate of interest in excess of 75% when you add interest and. late payment penalty. The late payment penalty after notice, on the other hand, is one percent per month, or an effective rate of 12% per year in addition to statutory interest. One1 drawback of filing a timely return without remittance is that the IRS will arrive at the taxpayer’s door to collect the liability much sooner than if he or she files a return late. However, the additional cost for penalties incurred to gain this time is prohibitive.

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