Tax

An IRS audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct. IRS audits are conducted either by mail (e.g., you receive a letter in the mail that you must respond to) or through an in-person interview.

Taxpayers who have been audited or otherwise interacted with the IRS should know that they have the right to know when the IRS has finished the audit. Known as the right to finality, it is one of ten basic taxpayer rights–known collectively as the Taxpayer Bill of Rights. All taxpayers dealing with the IRS are entitled to these rights. If you’ve been audited, here are seven things you should know about the right to finality.

1. Taxpayers have the right to know:

• The maximum amount of time they have to challenge the IRS’s position.
• The maximum amount of time the IRS has to audit a particular tax year or collect a tax debt.
• When the IRS has finished an audit.

2. The IRS generally has three years from the date taxpayers file their returns to assess any additional tax for that tax year.

3. There are some limited exceptions to the three-year rule, including when taxpayers fail to file returns for specific years or file false or fraudulent returns. In these cases, the IRS has an unlimited amount of time to assess tax for that tax year.

4. The IRS generally has 10 years from the assessment date to collect unpaid taxes. This 10-year period cannot be extended, except for taxpayers who enter into installment agreements or the IRS obtains court judgments.

5. There are circumstances when the 10-year collection period may be suspended. This can happen when the IRS cannot collect money due to the taxpayer’s bankruptcy, or there’s an ongoing collection due process proceeding involving the taxpayer.

6. A statutory notice of deficiency is a letter proposing additional tax the taxpayer owes. This notice must include the deadline for filing a petition with the tax court to challenge the amount proposed.

7. Generally, a taxpayer will only be subject to one audit per tax year. However, the IRS may reopen an audit for a previous tax year, if the IRS finds it necessary. This could happen, for example, if a taxpayer files a fraudulent return.

If you have any questions about this topic, help is just a phone call away.

• By Leon Clinton
• May 28, 2018

Under the Tax Cuts and Jobs Act (TCJA) enacted in December 2017, members of the U.S. Army, U.S. Navy, U.S. Marines, U.S. Air Force, and U.S. Coast Guard who performed services in the Sinai Peninsula in Egypt can now claim combat zone tax benefits. As such, eligible service members may be able to exclude part or all of their combat pay from their income for federal income tax purposes. Excluding combat pay from a taxpayer’s income can result in a lower tax bill. These combat zone tax benefits are retroactive to June 2015.

How Armed Services members can claim a refund

Service members who previously paid tax on this income may be owed a refund. They may file an amended tax return, Form 1040X, Amended U.S. Individual Income Tax Returnif they already filed a tax return for tax years 2015, 2016 and 2017.

Combat pay received on or after January 1, 2018, will be correctly reported on any W-2 forms issued to any service member who serves in the Sinai Peninsula. Service members who served in the Sinai Peninsula in 2015, 2016, or 2017 can provide documentation of their service to their finance officer and ask for a Form W-2c, Corrected Wage and Tax Statement.

However, an eligible service member who is unable to secure a corrected Form W-2c may still claim the combat pay exclusion by attaching to their Form 1040X copies of official documents showing they served or worked in the Sinai Peninsula. These documents should indicate the area, theater or military operation and the approximate entry date.

Acceptable documents include military orders, letters of authorization (civilians), hospital discharge papers, discharge from active duty, official letterhead memorandum from a military department or civilian employer, or a request and authorization for temporary duty travel of Department of Defense personnel (civilians and military).

Electronic filing is not available and amended returns can only be filed on paper. Amended returns may take up to 16 weeks to process; however, within approximately three weeks after mailing an amended return, taxpayers can track the status online using the IRS “Where’s My Amended Return?” feature.

Please contact the office if you would like more information about requesting a refund based on combat service in Egypt’s Sinai Peninsula.

• By Leon Clinton
• May 25, 2018

Tax season may be over, but you still need to hang onto your tax returns and other tax records for at least three years. However, if the IRS believes you have significantly underreported your income (by 25 percent or more), or believes there may be an indication of fraud they have the authority to go back six years in an audit. Furthermore, some documents including those related to real estate sales should be kept for three years after filing the return on which they reported the transaction.

In certain instances, such as when filling out financial aid forms for college, you may be required to upload your tax documents from prior years. If you haven’t kept copies of your tax returns, you can obtain them through the IRS, but you’ll have to pay a fee for them.

If you need an actual copy of a tax return you can get one from the IRS for the current tax year and as far back as six years. The fee per copy is $50. Taxpayers can complete and mail Form 4506, Request for Copy of Tax Return to request a copy of a tax return and mail the request to the appropriate IRS office listed on the form.

If taxpayers need information to verify payments within the last 18 months or a tax amount owed, they can view their tax account using the “View your account” tool on the IRS website. The tool is only available during certain hours, and your balance updates no more than once every 24 hours, usually overnight. You will also need to allow 1 to 3 weeks for payments to appear in the payment history.

Ordering a Tax Transcript

Taxpayers who cannot get a copy of a prior-year return (and don’t need an actual tax return) may order a tax transcript from the IRS. A transcript summarizes return information and includes AGI. They’re free and available for the most current tax year after the IRS has processed the return, as well as the past three years.

When ordering a transcript it’s important to plan ahead. Delivery times for online and phone orders typically take five to 10 days from the time the IRS receives the request. Taxpayers who order by mail should allow 30 days to receive transcripts and 75 days for tax returns.

There are three ways for taxpayers to order a transcript:

• Online. Use “Get Transcript Online” on IRS.gov to view, print or download a copy of all transcript types. Those who use it must authenticate their identity using the Secure Access process. Taxpayers who are unable to register or prefer not to use Get Transcript Online may use “Get Transcript by Mail,” also on the IRS website to order a tax return or account transcript type. Please allow five to 10 calendar days for delivery.
• By phone. The number is 800-908-9946.
• By mail. Taxpayers can complete and send either Form 4506-T, Request for Transcript of Tax Return, or Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript, to the IRS to get one by mail. Form 4506-T is used to request other tax records such as tax account transcript, record of account, wage and income and verification of non-filing. Both forms are available on the Forms, Instructions and Publications page on IRS.gov.

If you need assistance obtaining prior year tax information, please call.

• By Leon Clinton
• May 22, 2018