Your Tax Questions Answered: Interview with an IRS Agent

by Silicon Valley Blogger on 2007-12-2033

The following is an interview with a local IRS agent. The agent is an accountant with 26 years experience, specializing in small business and the self employed. The Agent offered to sit down with me and answer the burning questions that we all want to know. The questions were generated by readers, personal finance writers, and some of my own experiences.

Tax Agent

I just got notified of an audit, can you tell me what triggered it?
No, we cannot explain how your return was selected, but we can explain the various ways that returns are chosen. Audits are generated through random selection, special projects, and scoring from the random selection. Audits are also triggered by informants telling us about an incorrect return.

Am I more likely to be audited if I efile or file by paper?
Both methods are the same for audit purposes, but using efile corrects math errors.

I don’t have enough money to pay for back taxes that I owe, do you offer payment plans?
Yes, we have installment plans. There is a fee to set them up. Walk-in counter personnel at an IRS office can help you with the request form, 433-D.

Is there a threshold that the IRS doesn’t worry about? For example $20?
We do not adjust your tax liability for de minimis amounts.

If I have a preparer complete my taxes and he makes a mistake, who pays any penalties or interest due?
The taxpayer is responsible for all penalties and interest. If we believe the preparer is intentionally misleading taxpayers we can do an additional preparer penalty. This penalty does not, however, reduce any money owed by the taxpayer.

Do you maintain a list of good preparers and bad preparers?
No, but we have some preparers that we do prepare projects on and then audit 30 of their taxpayers. We do not share this information with taxpayers unless it is a public record.

Will the IRS help me with my taxes?
We will answer some questions but we do not prepare returns. The IRS sponsors volunteer programs VITA and TCE that offer free tax filing.

When I complete my return in Tax Cut, Turbo Tax, and by hand with the IRS directions, I get different numbers. Why is this?
Sometimes slightly different tax tables are used. If your numbers are off by more than a few dollars, look for input errors, math errors, and misunderstanding of the questions.

What happens if my return gets lost in the mail?
It is considered NOT filed. Always keep a copy of your return and mark it with the date you mailed it.

There is a checkbox to donate to the presidential campaign box? If I check this box, is it deducted from my refund?
No, it is taken from your tax liability. The donation does not increase the amount paid by the taxpayer.

The phone credit was missed by a lot of people last year, is there anything new this year that people should make sure to watch for?
The AMT (Alternative Minimum Tax) is still up in the air. The law to extend the changes was not passed in time for printing all the 2007 forms. The forms may or may not be right at tax time. Be sure to find out what the status of AMT is before filing.

If I’m in college is it better for my parents to claim me as a dependent or for me to claim myself?
The main question is: who provided more than 50% of your support? If it is your parents they may claim you. Even if they don’t you cannot claim yourself. If you provide more than 50% of your own support, you can claim yourself.

Is there such thing as red flags?
Yes, there are different projects that we do. For example, we watch for limitations on mortgage interest. You cannot claim interest on more than $1 million mortgage. You also cannot claim interest on more than $100,000 home equity loan under itemized home interest.

Another is the Passive Activity Losses are limited to passive activity income, except for $25,000 loss on real estate rental if you do not have Adjusted Gross Income over the $100,000 limit.

Are home office deductions really a red flag?
No, but it is a frequently improperly calculated item. Because of that, if your return is pulled and classified for audit for something else, we will check the home office deduction.

As a small business owner, can I deduct mileage?
Yes, you can deduct business mileage if timely and accurate business records or logs are kept. Keep in mind that commuting is NOT business mileage.

What tax strategies do you suggest for small business owners?

  • Keep good records of all business expenses and all income. Keep logs of business uses of vehicles and computers.
  • There is plenty of good software to use, but if you aren’t familiar with the laws behind it, it will not be as useful.
  • Educate yourself in the pros and cons of various business entities before you choose one and whether or not you need to pay sales tax.
  • Once your business is profitable consider opening a retirement account.
  • Good deductions to watch for include self-employed health insurance and half of your self employment tax. See 2007 tax limits.
  • The Small Business Administration offers free online tax courses that may be helpful.
  • Familiarize yourself with the Tax Guide for Small Business, Publication 334.

Any other things you think readers should know that would be helpful?
Keep records in a safe place … above water level!

During the interview, I offered to omit any questions that she felt were confidential information to the IRS. Luckily all of the questions were appropriate and are included here. She offered to do another interview closer to tax time if readers had more questions.

Today’s guest post is brought to you by My Dollar Plan, a blog authored by Madison, a 28 year old mother of two young children who also works in management for a fortune 500 company. Her hobby is personal finance and enjoys helping out others with their finances. From what I’ve read about her, we share similar profiles, but with some differences, such as our professions and her extensive background in finance 😉 . For regular updates from My Dollar Plan, you can subscribe to this RSS feed.

Copyright © 2007 The Digerati Life. All Rights Reserved.

{ 27 comments… read them below or add one }

RacerX December 20, 2007 at 2:03 pm

The AMT is going to be a mess this year and bog down return by up to four weeks.

Especially annoying since AMT was designed for the very wealthy who were try to get our of all taxes, yet was never indexed for inflation. This would be OK if I had a way-back machine and could buy everything at 1968 prices, but alas, I can’t.

It is such a large pool of dollars now it is going to be very hard to fix the right wway, which would be to tag an amount intended with the original bill and then index for inflation.

Egg on all of Congress’ face on this one.

Mrs. Micah December 20, 2007 at 3:14 pm

So I’m horribly confused by the AMT, whether it will apply to me, what it means…I just don’t understand. Probably because there’s been a lot of back and forth over whether and how it was going to be implemented.

And I’ve lived and worked in 3 states in the last year, spend half the year in college and half not in college. Half being supported by my parents, half not (though I think I more than halfway supported myself). My husband worked in a 4th state…

Should I just hire an accountant?

Racer X December 20, 2007 at 7:05 pm

To Mrs. M…YES 🙂

Mike-TWA December 21, 2007 at 3:13 pm

Madison, Great information. I look forward to a follow-up.

My Dollar Plan December 21, 2007 at 8:58 pm

Congress finally passed a temporary fix for the AMT. It won’t make it any easier to figure out, but at least they took care of it.

Dividends4Life December 22, 2007 at 12:15 pm

The entire Tax system needs to be revamped. Unfortunately, the longer it goes the less likely it will ever happen as more people and companies benefit from its complexity.

Great read, thanks for sharing it!

Best Wishes,

Praveen December 22, 2007 at 3:54 pm

This was a very informative post, and very impressive that you interviewed an expert.

Blog interviews are very useful, but underutilized.

I thinking that all of us bloggers should think about doing more of them.

Siena December 26, 2007 at 11:27 am

As a SE person commuting does count for business mileage if you work in several different cities. I commute to 3 different cities each week as well as work in the same city I live and go to school in–all the jobs are for different companies. So even though I commute from home, I am able to deduct mileage from my commuting cities. But this might be because I am self employed.

Silicon Valley Blogger December 28, 2007 at 8:40 pm

There’s so much about taxes I scratch my head over — to Mrs. Micah, I would suggest you visit with an accountant or other tax specialist if you have any questions since everybody has a different tax situation to deal with. I’ve had a tax guy for a while now.

Race December 28, 2007 at 9:07 pm

Where is the law that says we must file taxes?

Sharon Ogden January 30, 2008 at 10:47 am

not even sure if I have the right website pertaining to my question. My only source of income if alimony I receive $16,200 per year and will pay approximately $700.00 federal taxes on it for the year 2007, what if any tax rebate would I be entitled to.

Mike March 14, 2008 at 11:25 am

I recently started a mobile automotive repair business and a friend suggested I protect myself from liability by forming an s corporation, so I did last year. Now I’m confused on which forms I need to file for taxes. I’m starting with form 1120s but I don’t know which forms I need to file as the only shareholder. Do I use 1040 and file like a self employed individual? If not how can I claim my mileage which is my biggest deduction?

Jack R Greer March 20, 2008 at 3:13 pm

Can I deduct management fees for a professionally mangaged rollover IRA. The funds for paying the financial advisor is withdrawn directly from the account. Also my monthly income is derived from this account.
Thank You, Jack R Greer

John G. March 29, 2008 at 6:24 pm

I have a rental home that was damaged last year from a drunk driver. I had to have the house repaired with insurance funds. Can I write off the repairs that were covered by the insurance funds? I was told that insurance monies cannot be taxed, is that correct?

Silicon Valley Blogger March 29, 2008 at 8:01 pm

Hello guys,
A lot of people are coming here for tax questions, but unfortunately, I am not a tax expert. I would suggest that you consult with a tax expert for your specific tax questions.

This is just a blog on personal finance where we tackle some finance topics but we are not experts in this field, and our information here is on general topics. If you have specific questions that pertain to your own situation, please consult with an Enrolled Agent, CPA or tax consultant.

I apologize this wasn’t made clearer on this site!

cindy jimenez February 23, 2009 at 7:46 pm

What should I do if my previous employers are withholding my w2 forms and refuses to send them to me? Is there a way I can claim my taxes without using those forms or how can I go about getting those w2s.

Steve Jackson February 26, 2009 at 10:54 pm

I want to give my son $100000 to help him buy a house, will he or I have to pay tax on this?

Silicon Valley Blogger February 26, 2009 at 11:40 pm

Thanks for all your questions — if there’s anyone out there who can help answer these questions, please offer us your thoughts.

But please take note that we’re not tax professionals here — I’d strongly recommend you chat with a tax professional about your specific questions and issues.

@Cindy, I haven’t come across the situation when an employer would withhold your W-2 forms. I would have expected them to supply them to you as they have a legal obligation to do so, I would think?

@Steve, I believe you’ll owe taxes on your monetary gift to your son. That’s something you can look into — taxes on gifts you give to others of an amount that’s above a particular limit.

Jan March 19, 2009 at 8:14 pm

I have a question regarding our pick-up being leased by my husband’s employer. We own it and pay the payments and insurance….but his employer leases it from us for my husband to drive for work and they pay us $450.00 per month for this. At the end of the year they fill out a Form 1099-MISC. The only thing on it is in box 1 RENTS….they have the amount in there. My question is what all can we deduct from this? Can we deduct the miles driven to and from work because that is the intent of the employer to provide this AS part of his income? Please help with this matter ASAP!! Thank You!

luangelo March 20, 2009 at 11:07 pm

I have a credit union account with mom as joint owner. Interest was listed in my social sec number but mom claimed on her return. do i need to declare income?

Danielle April 10, 2009 at 8:34 am

I live in NC which has state tax. I came to Florida last summer and worked for three months and paid federal taxes but not state. Do I have to pay state taxes for NC on these earnings?

Clarence April 15, 2009 at 4:58 am

My wife died on January 4. We were both retired and have no w-2s coming in. She did have a small retirement that was stopped on the day she died. Do I file Joint on the return.

tom smith April 18, 2009 at 5:58 pm

My wife and I are separated but not legally by the courts. We have 3 kids, one in DCFS care. Last year we agreed that she would claim out daughter while I claimed our son. There was never a change to this. This year, she filed before I knew it and claimed both kids. Can she legally do this or are we both entitled to claim?

Also last year, our oldest son lived with my sister before he went into DCFS care and my wife tried to claim him. My sister threatened to turn her in until she amended. I suspect she did this again. Is there any way to find out?

bonnie giglio January 7, 2010 at 8:49 pm

If a student loan was taken out for living expense of $6000.00 to live on can i file a income tax for that and claim my 2 children? single mom full time student.

Daryl January 26, 2010 at 3:31 pm

If I allow my ex-wife to claim our only dependent can I still file head of household and will my refund be close to the same as it would’ve if I would have claimed our daughter?
By the way I live in Ohio…..didn’t think that would matter but if you need to know

Karen Schaefer February 11, 2010 at 7:31 am

I am filing my taxes and I am in school; it says please state amount paid to school. I paid my school in the beginning of this year for last year with a loan I got through the school which should of been paid last year but because of mistakes and problems caused from these mistakes through the school it didn’t process through till recently. It was money that was used for last year. Can i still state this as money paid for school on my 2009 tax returns or not?

Zoe Horlick February 24, 2011 at 2:29 pm

Can you tell me about the minimum income tax to not husband is on SS and I work.

Thank you


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