Have you received an IRS audit notice recently? Handling it alone might increase the risk of penalties. That’s where Sullivan steps in to resolve the complex audit process. With his 10+ years of direct experience with the IRS, he knows how to transform the challenging audit journey into a straightforward path. He also makes sure that you do not get any IRS notices in the future!

Know From Mike: Common Mistakes That Trigger IRS Audits

Income Discrepancies

  • Sudden and substantial changes in reported income can raise audit flags.
  • Discrepancies between reported income and previous years’ data attract attention.

Unusual Deductions

  • High or uncommon deductions compared to national averages may trigger scrutiny.
  • Discrepancies in deduction patterns can be a red flag for IRS algorithms.

Inconsistencies in Reported Information

  • Discrepancies between information provided in different sections of the tax return.
  • Inaccuracies in reporting, such as mismatched numbers, may prompt further investigation.

Fluctuations in Year-to-Year Data

  • Significant fluctuations in financial data compared to historical records can be a trigger.
  • Abrupt changes without clear explanations may warrant closer examination.

Non-compliance with Industry Norms

  • Deviations from industry averages or standards may attract attention.
  • Industries with specific benchmarks may face scrutiny if they violate financial norms.

High DIF Score

  • A culmination of various factors, a high Discriminatory Index Function (DIF) score, can trigger an audit.
  • The DIF Score reflects the likelihood of a return deviating significantly from national averages.

How the DIF Score Works: Sullivan Unveils the IRS Algorithmic Insights

The IRS uses sophisticated algorithms to examine every detail of your tax return to determine your DIF score. Here’s a breakdown of the key criteria these algorithms consider:

  1. Income Evaluation:
    IRS algorithms meticulously analyze your reported income, looking for patterns, inconsistencies, or significant fluctuations.
  2. Deduction Scrutiny:
    The criteria extend to deductions, examining whether your claimed deductions align with expected norms or if they appear unusually high or irregular.
  3. Credit Assessment:
    Algorithms using credits verify the authenticity of claims and compliance with predetermined eligibility requirements.
  4. Financial Data Examination:
    Beyond income, deductions, and credits, the algorithms delve into various financial data to assess the overall financial health of your return.

Tax Return Key-Punching Process To Generate Your DIF score

  1. Data Input:
    Information from your tax return is systematically inputted into the IRS system, ensuring that every detail is accurately recorded.
  2. System Analysis:
    The IRS system then analyzes the inputted data, employing its algorithms to calculate the DIF Score based on the criteria mentioned earlier.
  3. Numerical DIF Score Generation:
    The result is a numerical DIF Score, representing the level of scrutiny your tax return may undergo. A higher score indicates a higher likelihood of deviation from the norm.

IRS Review Process: Unveiling the In-Depth Examination

Thorough Scrutiny by IRS Agent: A high DIF Score prompts a closer examination by IRS agents. Trained agents meticulously review the details of your tax return.

Verification of Reported Information: Agents verify the accuracy of reported information against supporting documents. Scrutiny extends to cross-checking reported income, deductions, and credits for consistency.

Identification of Discrepancies: Agents focus on identifying any discrepancies or irregularities within the tax return. Each element, from income to deductions, undergoes a detailed analysis for accuracy.

Communication with Taxpayers: IRS agents may initiate inquiries seeking additional information or clarification. Taxpayers may be contacted to provide explanations for flagged discrepancies.

Risk Assessment: The review process includes an assessment of the overall risk profile of the tax return. Agents aim to ensure that the return aligns with tax laws and regulations.

Documentation of Findings: Agents document their findings and assessments for reference. The documentation serves as a basis for potential further actions, if necessary.

Get Expert Advice From #1 Former IRS Agent to Avoid IRS Audit

Systematized Storage of Documents
Organize all relevant documents, categorizing receipts, statements, and financial records for easy accessibility and quick reference.

Transaction Details
Maintain detailed records of financial transactions, incorporating dates, amounts, and purposes, to establish a transparent trail for auditors.

Consistency in Reporting
Uphold consistency in reporting across all financial documents to minimize discrepancies and alleviate concerns that may arise during audits.

Digital Backups
Keep digital backups of crucial documents, serving as an additional layer of protection in case physical records are lost or damaged.

Timely Record Keeping
Record transactions promptly to avoid task accumulation, ensure accuracy and facilitate a smoother auditing process.

Communication Documentation
Keep thorough records of any communication with tax professionals or the IRS. Documenting discussions and decisions provides a clear and comprehensive record of your engagement, enhancing transparency and compliance.

Concluding Thoughts

Sullivan offers an audit notice resolution service that is tailored to the unique needs of your company, addressing potential challenges. From conducting a thorough financial review and strategic planning to direct communication with tax authorities and skilled negotiation, each step is designed to secure the most favorable outcome.

His commitment is to relieve the burden of audit concerns and provide ongoing support, safeguarding your financial well-being. Above all, he is more focused on the continued success of your business.

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Author

Mr. Michael D. Sullivan

Michael D. Sullivan is the founder of MD Sullivan Tax Group. He had a distinguished career with the Internal Revenue Service for 10 years. As a veteran IRS Revenue Officer / Agent, he served as an Offer in Compromise Tax Specialist and Large Dollar Case Specialist.

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