Tax Practice and Procedure and SBSE Update

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Tax Practice and Procedure and SBSE Update - Zicklin School of ...

Tax Seminar

Baruch College

December 3, 2012

Tax Practice

and

Procedure

and SBSE

Update

Bryan Inoue - Area Director, North Atlantic

SBSE, Examination

Bryan C. Skarlatos, Kostelanetz & Fink, LLP

bskarlatos@kflaw.com


Mission of the IRS

• Provide America’s taxpayers top quality

service by

• Helping them understand and meet their tax

responsibilities; and

• Enforce the law with integrity and fairness to all

2


BUT HOW DOES THE IRS

GET ITS TAXES?

WHAT IS THE FIRST STEP?

3


Assessment

• The IRC gives the Secretary of the Treasury

the authority to “make inquiries,

determinations and assessments of all taxes.”

• An assessment is made by recording the

liability of the taxpayer in the office of the

Secretary of the Treasury.

4


Like entering an account receivable

5


How Do You Get To Assessment?

Voluntary Compliance?

6


But What If We Don’t Comply?

7


The U.S. Tax System is based on

“Self-Assessment”

That is what tax returns are all about

8


Tax Returns

Tax Return is the method of self-assessment

• Tells the IRS how much we owe and starts the

process

• Also starts the statutes of limitations

• Civil and criminal penalties for failure to file

9


But what if we fail to self-assess the

correct amount?

That’s what audits are all about

10


Tax Procedure Overview

Tax Return /

Self

Assessment

Audit

Protest

Notice of

Deficiency

Assessment

Audit Notice

RAR 30-Day

Letter

Appeals

Tax Court /

Final

Decision

Collection

11


Commissioner Shulman

last day Fri, Nov 9

Steve Miller

Acting Commissioner


Hurricane Sandy Impact

Suspend Compliance Activity

• thru Feb 1, 2013

• cannot initiate contact unless have appt or

statute expiring

• FEMA disaster areas


Return Preparer

Program

Abusive

Promoters


Offshore Programs

• OVDP

• Treaty cases

• Non resident, Non

Filer U.S. Taxpayer

Program


16

16

16

CA

LB&I Domestic Realignment

RI

NJ

MA

NH

VT

ME

NY

PA

OH

WV

KY

IN

AR

MO

IA

IL

MN

ND

SD

WY

CO

NM

AZ

UT

ID

NV

OR

WA

AK

9

MT

WI

DE

Manhattan

HI

VA

NC

SC

DC

NE

KS

MI

GA

MS

OK

TX

LA

FL

AL

MD

CTM

NRC

HMP

FS

RFTH


CADE 2


Flow Thru

(Partnership)

Strategy

National Research

Program


VCSP


Conduct of Audit

• Acquisition/provision of information

Tax return information

• Internet

• Informal discussions

• Information documents requests (“IDRs”)

• Summonses

• Third-party contacts

20


Things to Watch Out For

• Sensitive Issues

• E.g. Schedule C taxpayer, cash intensive business,

double set of books, personal expenses, foreign

corporations or accounts, etc.

• Privileges

Tax Return Preparer

• Attorney Client

• Work Product

• Fifth Amendment

21


• OBJECTIVE:

TAXPAYER

REPRESENTATION

The Audit

• Early Resolution on most favorable basis possible

• YOUR ROLE

• Act as a buffer between the client and the IRS

• Facilitate effective communication

• Protect client

• Humanize the audit process –

• Cooperate with the examiner in a timely manner –

an audit is not intended as an adversarial process

• Avoid misleading information of any kind

• Document control – make duplicate copies of

documents provided

22


TAXPAYER

REPRESENTATION

Pre-Audit Considerations

• Consider contacting the IRS examiner in

advance of the scheduled examination to

possibly streamline or limit the initial scope of

the examination

• Review large, unusual or questionable items in

the return

• Review potentially applicable IRS Audit

Technique Guidelines

23


TAXPAYER

REPRESENTATION

Pre-Audit Considerations

• Review returns of all related entities and

taxpayers

• Review returns for other tax years

• Pattern of errors? (3-year review)

• Review related State and Local returns

• Review prior examination reports, if any

24


TAXPAYER

REPRESENTATION

The Audit - Interviews

Taxpayer & Preparer

• Written questions in advance?

• Timing? (Near end of the audit)

• Place? (Where is TP comfortable?)

• Interview techniques -

• Be comfortable and personable

• Ask for clarity if you don’t understand

questions

• Maintain appearance of cooperation

throughout

25


TAXPAYER

REPRESENTATION

The Audit

• Anticipate tours of business sites

• Knowledgeable individuals present

• Explain business practices

• Should not disrupt business operations

26


TAXPAYER

REPRESENTATION

The Audit

• Information Document Request (IDR)

• Timely, narrative responses

• Summons – have there been timely,

reasonable responses to the IDRs?

• Requests to extend the Statute of

Limitations?

• How much time is reasonable?

• Request restricted extension?

27


TAXPAYER REPRESENTATION

The Audit – Indirect methods of

Determining Income

• Unexplained bank deposit analysis

• Expenditures exceed known financial

resources

• Cash hoard?

• Unexplained increases in net worth

• Mark-Up analysis

28


TAXPAYER

REPRESENTATION

The Audit - Badges of Fraud

• Conduct during the examination – evasive?

• Multiple sets of books & records?

• False or duplicate invoices?

• Concealment

• Check cashing

• “Pattern” of errors

29


TAXPAYER

REPRESENTATION

The Audit

• Freedom of Information Act Request

(FOIA)

• Form – Search “FOIA” at irs.gov

• When to file?

• Where to file? See list of IRS Disclosure

Offices at irs.gov

• Penalty Considerations

• Reasonable cause – reliance? See IRM

20.1.1 “Introduction and Penalty Relief”

• Disclosure statement – Form 8275

30


TAXPAYER

REPRESENTATION

Post- Audit, NO Agreement with

the IRS Examination Findings

• Request a conference with the examiner’s

manager or supervisor

• If IRS issues a “30-Day Letter”:

•Can request an extension of the 30 day

period to respond

•File a Protest within the referenced 30

day period

•Proceed to Appeals

31

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