Al Aiello’s daughter, Janine Golini, has taken over the operation of his business. You may contact her at 3144 S Uber St Philadelphia Pa 19145 Tel: 215-688-3667
In part 3 of our series on audit-proofing, we will explore what tax expert, the late Al Aiello of www.alaiello.com advises investors to do to get over the dreaded FEAR of an audit and to know your rights in case you are ever audited.
1. Taxpayers’ Rights. As a taxpayer, you have rights, which have been expanded under The IRS Restructuring and Reform Act of 1998. Taxpayers can sue the IRS for damages caused by an IRS employee who “recklessly or intentionally” disregards provisions of the code or regulations in connection with collecting taxes. You can collect attorney’s fees and related costs (such as expert witnesses) if you prevail in a case in which the court determines that the IRS acted without “substantial justification”. (Refer to IRS Publication 1, Your Rights as a Taxpayer.)
2. Know the IRS’s hidden weaknesses. In the event of an IRS audit, there are IRS “hidden weaknesses” that can help you. Use “time”. IRS auditors are under time pressure to close cases. They are rated by how many cases they close. So if your records are organized and you are persistent in your arguments on viable issues, the auditor may just want to move on to another taxpayer’s case.
3. If necessary “appeal” your case to win. If the IRS auditor is still not agreeable, you have a better chance of winning on appeal. Statistics show that the average results on appeal are a 40% reduction in taxes, penalties, and interest. However, only one out of sixteen audited taxpayers go to Appeals. The Appeals (or “Appellate”) level of the IRS is not a court, but an informal hearing with an “Appeals Officer”, who has a different job than auditors at the examination level. Their job is to settle cases and avoid the “hazards of litigation”, such as the cost of going to court and the IRS losing.
Appeals officers have better credentials and training than office auditors.
Thus, they have more power to negotiate a settlement of a tax dispute, considering the strength of the evidence. For more about the appeals process, refer to IRS Pub.1, Your Rights as a Taxpayer.
4. Knowing your rights gives you more confidence. Knowing your appeals rights from the outset of an audit can give you more confidence and strengthen your position throughout the audit. Again, IRS auditors are evaluated by how many cases they close. They therefore do not want your case to go to Appeals.
5. Knowing your rights from the outset and knowing how the system works, can have an impact on your taxes before you are ever audited (if, you are ever audited). For instance, if you discreetly take aggressive positions on questionable areas of the tax law, you will know that you have a good chance of winning by actually going to Appeals (or by stating that you will go to Appeals), with the good possibility that the IRS auditor will back off, as per the above.
What to do if you are Audited
• Appeal the decision
• On average, appeals result in a tax bill that’s 40% lower
• The appeal delays your tax bill for several months giving you time to get the funds together in case you lose
• Appeals Officers are hired to settle a case which means they are open-minded to your situation and eager to settle.
How to start an appeal
• Have your tax attorney write a formal protest letter
• Request the IRS auditor’s file
When it’s time for the appeals hearing, you and your tax attorney will meet the appeals officer, present your case, and answer questions. They will usually negotiate a settlement right away and write it up on IRS Form 870. Some people opt to do all this alone, but it is advisable to have an experienced tax attorney back you up
A Recent question from my blog
QUESTION: I own a duplex rental property in which I live on 1 of the floors. I am married, and our AGI is $125,000. Can I deduct half the PMI insurance paid on our monthly mortgage on Schedule E? Or is our AGI too high?
ANSWER: Yes, because this is tied to your rental and not subject to the AGI limitation. Only the piece for your residence is subject to the AGI limit. In general, you can deduct PMI premiums in the year paid. However, if you prepay PMI premiums for more than 1 year in advance, for each year of coverage you can deduct only the part of the PMI payment that will apply to that year. In addition, PMI premiums paid in connection with the acquisition or construction of rental property may instead be required to be capitalized and depreciated as part of the property’s basis.
I address many of these issues in my Wealth Building Plan. Make sure you are getting the best tax advice. Let me evaluate your financial and tax situation, then develop a customized tax strategy just for you. Together, we will come up with a strategic plan designed to answer your questions as you build your customized wealth-building plan. You can get more information at WealthBuildingPlan
