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Home > Audit Proofing Stratagies

Audit Proofing Your Tax Return

What Is Audit-Proofing? The basic concept of this book centers on audit preparation during the tax year, not next year when you file your tax return, nor two years later when you get an "invitation" from the IRS to "come down and show us your books." Audit-proofing means preparing for the possibility of an audit day by day during the current tax year. You prepare for an IRS audit by knowing what tax law rules the IRS could question, and what documentation it could require to substantiate or verify your current on-going deductions and expenses.

In this book, I differentiate audit-proofing from audit-planning: Audit-planning occurs immediately before an impending audit when you prepare your strategy for appearing at an audit. This means that once you receive an audit "invitation" letter, you take the time to plan your defense against the upcoming attack on your tax return. Audit-planning usually involves a strategy session with your tax preparer or consultant, when the need arises. Audit-proofing is an on-going activity year-round, every year.

This distinction is vital to understanding the concept of audit-proofing presented in this book. To audit- proof your tax return means to prepare during the tax year so that you could later withstand the complete scrutiny of an IRS audit. The objective of an audit-proofed tax return is a "no-change audit"- or an audit, should one occur, that will result in no additional taxes.

Audit-proofing does not mean that you will never be audited. No one could ever guarantee that. However, there are important strategies and techniques that you can follow that will actually minimize your chances of being audited.

 
Introduction: Audit-Proofing and the IRS
1.  Audit-Proofing and Tax-Saving
2. Popular Misconceptions About an IRS Audit
  Audit Misconception #1
Audit Misconception #2
Audit Misconception #3
Audit Misconception #4
Audit Misconception #5
3. Exhibit 0-1: How Classifiers Identify Significant Issues on
                  Nonbusiness and Business Tax Returns
Step 1: Keeping Proper Records for an IRS Audit
1. Why You Should Maintain Adequate Records
2. What Records are Necessary?
3. Travel and Entertainment Expense Records
4. What are Adequate Records or Sufficient Evidence?
5. IRS Regulations on Adequate Records for Travel and
Entertainment Expenses
6. Special Substantiation Rules Began in 1986
7. Exhibit 1-X: Substantiating Business - Related Expenses
8. Recordkeeping by Employees
9. Exhibit 1-1: Recordkeeping for Individuals (IRS Pub. 552, PDF Format)
 
Step 2: Getting Correct Information from the IRS (& others)
1. Where to go for Answers
2. Exhibit 2-1: Guide to Free IRS Tax Services
3. Exhibit 2-2: Taxpayer Information Publications
4. Exhibit 2-3: Explore IRS e-file
5. Exhibit 2-4: Business Tax Services and Information
6. Exhibit 2-5: Taxpayer Assistance Programs
7. Exhibit 2-6: Taxpayer Education Programs
  
Step 3: Knowing What the IRS Will Be Looking for
1. The First Aspect: Correct Documentation
2. The Second Aspect: Correct Information
3. Special IRS Audit Targets You Should Know About
4. Exhibit 3-1: Proof You Will Need to Substantiate Your Deductions
5. Exhibit 3-2: Checklist of What Rules and Information the
                    IRS Will Be Verifying
  
Step 4: Avoiding Tax Scams, Shams, and Illegal Shelters
1. Tax Scams and Shams
2. Common Tax Protest Schemes & Frivolous Tax Arguments
3. Tax Shelters
4. Identifying an Abusive Tax Shelter
5. IRS's Tax Shelter Program
6. Tax Court Response
7. Should You Invest?
8. Exhibit 4-1: IRS Example of Abusive Tax Shelter Consequences


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