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An IRS Revenue Agent Report (RAR) is a document prepared by a revenue agent, which is a type of IRS employee who is trained to audit tax returns and determine the accuracy of the information provided.
If you are the subject of an IRS audit and receive an RAR, it is important to carefully analyze the report in order to understand the issues being raised and determine the best course of action.
In this article, we will provide an overview of the process for analyzing an RAR, including reviewing the findings and determining any potential implications for your tax liability. Understanding the content of the RAR and the audit process can help you to effectively respond to the audit and minimize any potential tax liability.
Let’s dive in.
The Revenue Agent’s Report is a detailed document describing an IRS examiner’s audit findings. Additionally, the Revenue Agent Report states “the amount of deficiency or refund the agent finds the taxpayer to owe or be owed, respectively.”
Taxpayers have the right to disagree with a revenue agent’s report. If taxpayers disagree, they can challenge the agent’s findings through:
If the Revenue Agent Report is unchallenged or upheld, delinquent taxpayers may be subject to increased fines or jail time if they fail to reconcile their tax situation.
Every IRS audit concludes with a Revenue Agent Report which includes all the findings the IRS made based upon the documents and information collected, and the determination IRS has made.
An IRS audit starts with an initial audit letter sent to the taxpayer (in the case of our clients, the business owner). Then the IRS will send an IDR, also called an Information Document Request with a list of documents and information the IRS needs.In some cases a business owner might receive more than one IDR.
The next step is to provide documents and negotiate, communicate with your revenue agent and comply with additional requests for information. At the end of the audit, you will receive a Revenue Agent Report.
Let’s review the sections of the Revenue Agent Report, so you understand where the information is and how to read it.
The first section of the RAR is adjustments to income. This includes anything from income, additional income the IRS found, or even a reduction of income.
Usually, IRS finds additional income. Additionally, the section will include any other adjustments to expenses and potentially even net operating losses.
The next section of the RAR is the corrected tax liability. shows the correct amount of tax that the IRS believes you owe, based on the audit findings. This may be different from the amount of tax that you originally reported on your tax return. The corrected tax liability is calculated by adding any additional tax that the revenue agent determined you owe, subtracting any overpayments that the agent found, and making any necessary adjustments to your tax return.
The balance at the bottom of the RAR reflects the total amount of tax that you owe, including any interest and penalties that may have been assessed. It is important to carefully review the corrected tax liability and balance sections of the RAR, as they will provide important information about the tax implications of the audit and any action you may need to take.
If you disagree with the corrected tax liability or the balance, you can contest the findings and seek to resolve the matter through the IRS appeals process.
After the adjustments to income, you’ll find expenses. The expenses on your return are negative, they offset income. If IRS disagrees as to an item of an expense, it will be listed as a positive number to offset the negative number.
Below the corrected tax liability and credits, the Revenue Agent Report will list the balance at the bottom of the first page.
This balance does not include penalties and interest.
The top of page two of the Revenue Agent Report lists the penalties that the IRS has assessed based on the audit findings. Penalties may be assessed for a variety of reasons, such as filing a tax return late, making payments late, or failing to keep adequate records.
One type of penalty that may be assessed is the negligence penalty, which occurs if the IRS determines that you kept poor records and did not have sufficient substantiation for your claims. This penalty may be assessed if the IRS determines that you made errors on your tax return due to a lack of attention or care, rather than an intentional effort to evade taxes.
The IRS may also assess a fraud penalty if they believe that you deliberately and willfully failed to file a tax return on time or deliberately understated your income or overstated your expenses in order to evade taxes. Fraud is considered a more serious offense than negligence and may result in more severe penalties.
It is important to carefully review any penalties listed in the RAR and understand the reasons for their assessment in order to respond appropriately and contest any penalties that you believe are incorrect.
The section on page two of the Revenue Agent Report that lists interest and the total balance is an important part of understanding the tax implications of the audit. Interest is typically assessed from the date that the tax payment was due, which is usually April 15th for individuals and March for corporations.
The RAR may include a broad description of why the full expense was not allowed or why the tax payment was not satisfied. In some cases, the revenue agent may provide more detailed information about the audit findings in the work papers that were used to prepare the RAR. If you want more detail about the audit findings, you can request that the revenue agent provide the work papers to you. These papers may include a factual summary of the information that was exchanged between you and the IRS during the audit process. Having access to this information can be valuable in helping you to understand the audit findings and respond appropriately.
The final section of the Revenue Agent Report is called “Recommendations.” In this section, the revenue agent will list their recommendations for how to resolve the findings. These recommendations are non-binding, but they can be helpful in negotiating with IRS.
If you believe that the revenue agent overlooked some facts and you have some substantiation that’s not being considered by the revenue agent, you should consider communicating with the supervisor and try to get the supervisor involved. File a protest letter within the deadline.
Consider enlisting the help of an experienced tax attorney to navigate the complex situation and efficiently resolve any issues with IRS.
At Milikowsky Tax Law, we have over a decade of experience working with IRS audits and are experts in defending business owners in the face of IRS or other government agency audits.
Read on to learn how to respond to an IRS audit in 2022.
What happens if you miss a tax deadline? How long does it take before the IRS begins its collection action to collect your tax balance? How many fees will you have to pay?
Understanding and managing the nuances of tax law isn’t easy. Whether you have failed to file your tax return on time, could not make a payment on time, or you are were assessed penalties by IRS, the best thing you can do is seek the assistance of skilled tax attorney.
The team at Milikowsky Tax Law has years of experience navigating complicated tax matters. If you have questions and need clear advice from tax attorneys who have business experience, and can provide value to resolve your matter, contact the team at Milikowsky Tax Law and access our expert resources for handling these situations.
When you’re running a business, it can be difficult to keep track of all the things you need to do — and when — to keep your company safe and in good legal standing. If you’ve missed the official deadline to file your taxes, you’ll need to speak to the IRS as quickly as possible. There will be a penalty for filing taxes late, but the sooner you address this issue, the better chance you have to minimize the amount of penalties you may owe and the collection action IRS can take (i.e. levies on bank accounts, liens, etc.).” The penalty for failing to file a timely return is generally higher than the penalty for failing to pay the full taxes owed. Thus, once you discover your tax returns have not been filed, you should act quickly to gather your records and work with your accountant or CPA to have the returns prepared and filed.
If you’ve missed a deadline, you probably have a lot of questions swirling in your head: How late can you file your taxes? What kind of consequences can you expect for being behind? Who should you contact first? Don’t panic.
As soon as you realize that you’re late in paying your taxes, it’s important to seek help as quickly as possible. If you can pay the money owed quickly enough, you can reduce a lot of stress in dealing with the IRS. Even if you respond promptly, you should prepare to face a penalty for filing taxes late. This may include meeting with a trusted tax attorney and your own financial advisor to plan for the financial effects. Browse our resources below to help you understand what happens if you miss a tax deadline and how it will impact your finances.
If you realize you cannot pay your taxes in full, you do have options, such as:
If you are having a financial hardship, you may qualify for an Offer in Compromise (“OIC”), which is a request to IRS to settle your tax liability for a lesser amount based on a “Doubt as to Collectibility” or “Doubt as to Liability.” These issues involve intricate tax laws, legal issues, and a thorough analysis of a person’s finances (including preparing a bank account analysis and financial statement). If your business owes taxes, the company’s legal tax issues and financial analysis must also be thoroughly analyzed. The best thing you can do is speak to an experienced tax attorney and develop a custom strategy for resolving your outstanding balance with the IRS.
Back taxes arise when your personal or business taxes are not paid in full by the due date. For income tax, payroll tax, and sales tax, these can be quarterly and yearly. Over time, they accrue interest, and can also come with a host of other penalties to consider. If you’re wondering what the penalty for filing taxes late might be, back taxes are a common consequence.
No one wants an ongoing tax debt to worry about when they are trying to run a successful business. There are several ways to resolve your tax debt, from agreeing to pay back a portion of the money owed each month (i.e. an offer in compromise), to requesting an extension of time to pay. Even if you owe the IRS more than you can afford to pay, there are solutions available — such as an offer in compromise. The best decision you can make is to start with an experienced tax attorney who understands your business and can offer clear solutions to resolve your tax issue.
An IRS Bank Deposit Analysis is a tool used by the Internal Revenue Service (IRS) to help determine whether an individual or business has accurately reported their income on their tax returns. Preparing an IRS Bank Deposit Analysis involves gathering and organizing financial records, including bank statements and other documentation of deposits made into your account(s).
This process can be time-consuming and may require some effort, but it is important to accurately report your income to the IRS to avoid potential penalties and fines.
In this article, we will provide an overview of the steps involved in preparing an IRS Bank Deposit Analysis and offer some tips for making the process as smooth as possible. Let’s begin with reviewing what an IRS bank deposit analysis includes.
A bank deposit analysis is where the IRS will analyze all the deposits coming into a bank account that you own, either personal or business, and determine whether those deposits are taxable or non-taxable income.
It can be difficult to determine the source of cash deposits, as it is not always clear whether the money was received from the sale of a car or from wages earned through work. As a taxpayer or business owner, it is your responsibility to provide documentation to establish the origin of income and determine whether the deposit is considered non-taxable. It is important to accurately report all income to the Internal Revenue Service (IRS) to avoid potential penalties and fines.
Here are some steps you can follow to prepare an IRS Bank Deposit Analysis:
Gather financial records: Start by gathering all relevant financial records, including bank statements and any other documentation of deposits made into your account(s). This may include pay stubs, invoices, receipts, and other documentation that supports the sources of the deposits.
Organize the records: Next, organize the records in a way that makes it easy to review and analyze the deposits. This may involve sorting the records by account, timeframe, or source.
Calculate the total deposits: Using the financial records, calculate the total amount of deposits made into the account(s) being analyzed.
Identify the sources of the deposits: Determine the sources of the deposits, such as wages, self-employment income, rents, and other sources.
Determine the taxability of the deposits: Review the documentation provided and consider the taxability of the deposits based on the source of the funds and any applicable tax laws.
Prepare the analysis: Using the information gathered, prepare the IRS Bank Deposit Analysis by completing all relevant sections, including a summary of deposits, a breakdown of deposits by source and account, and any supporting documentation.
Let’s dive into the key considerations surrounding the IRS Bank Deposit Analysis process. This includes an overview of how the process operates, as well as the types of information that may be requested from taxpayers in the course of the analysis.
It may be difficult to determine the source and taxability of certain types of income, such as funds transferred from a credit line or money received from escrow. In these cases, it may be necessary to provide additional documentation or seek clarification from the source of the funds to establish the origin of the income and determine its taxability.
If you receive a check and a copy of it from the IRS, you can use the information on the check to understand where the money is coming from and whether or not it is taxable. It might be helpful to contact the person who wrote the check to confirm the source of the income and why you received it.
The Bank Deposit Analysis is an essential part of every single IRS audit because determining income is essential to every single IRS audit.
Upon completion of the IRS Bank Deposit Analysis, the IRS will prepare a work paper that compares the total deposits identified in the analysis to the income reported on the individual or business’s tax return. If there is a discrepancy between the two, especially if there is an increase in the total deposits, the IRS may assess additional taxes based on the increase in income.
This process may be repeated for each year being audited. It is important to accurately report all income on tax returns to avoid potential assessments of additional taxes and penalties.
If IRS selects the first year for audit as a test year and discovers unreported income, it is likely that additional years will also be audited. However, if the amount of unreported income is relatively small or insignificant, IRS may not conclude that the same errors are occurring in other years. It is important to accurately report all income on tax returns to avoid potential assessments of additional taxes and penalties.
During an IRS audit, it is advisable to devote significant attention to the Bank Deposit Analysis and maintain thorough records, particularly when depositing cash. It can be difficult to trace the source of cash deposits, so it is important to document the origin of the funds through photocopies of checks, contracts, or other relevant documentation.
Additionally, making a note of the source of cash deposits, such as the sale of a car or the receipt of a contract payment, can help to explain and potentially resolve any issues with the IRS. Accurate record-keeping is crucial in the event of an IRS audit to ensure that all income is accurately reported and to avoid potential assessments of additional taxes and penalties.
Business owners should contact Milikowsky Tax Law if they have any additional questions about how to navigate the IRS audit process.
At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax audits. We’re experts in defending business owners in the face of IRS or other government agency audits.
Interested in learning more? Read on to learn how to respond to an IRS audit.
While IRS will occasionally audit businesses randomly, they usually audit an individual or business because your tax return contains an error or a transaction that is inconsistent with other businesses in your industry. Our San Diego IRS attorney explains what steps you should take to ensure you are protected.
The Budget Reconciliation Act will re-fund the IRS with audits making up the lion’s share of the way the IRS intends to make back that investment in the Government Department. With the right financial and legal experts at your side, however, you can successfully navigate this complex process. Once you have received notice of an audit, contact our San Diego IRS attorneys! We can investigate your audit and determine your legal and business options.
The Small Business Administration (SBA) has forgiven over 98% of the total Paycheck Protection Program (PPP) loan value that borrowers requested them to forgive; recently, however, SBA has begun to issue more forgiveness PPP loan forgiveness denials.
Many of these recent denials issued by the SBA are not consistent with their own guidelines. Borrowers have received denial letters based on:
Borrowers should be aware that such denials are appealable. Consider challenging forgiveness denials if you believe SBA’s decision is in error.
Read our full guide to SBA’s PPP loan forgiveness denial below to learn more about how to appeal a denial, the criteria required for an appeal, and who can represent your company in the process.
If SBA denied your application, you will receive an SBA Final Decision Letter in the mail.
Learn more about what to do if your PPP loan is not forgiven, here.
The first page of the Final Decision letter contains a section indented and in bold that provides the reasons SBA denied your request for forgiveness. It’s important to understand why SBA is rejecting the forgiveness application before taking action- such as appealing the denial.
The decision to deny your PPP loan forgiveness can be made by:
You must respond to SBA and submit your appeal within 30 days of the date listed on your SBA Final Decision Letter. The timeline for SBA forgiveness appeals is inflexible. Once your initial 30-day period expires, you will lose your right to appeal SBA’s denial to forgive your PPP loan.
You must appeal denials of forgiveness to the SBA’s Office of Hearings and Appeals (OHA) within the 30-day period.
File appeals through OHA’s case portal. Filings for PPP appeals received in any other manner may be rejected and not docketed for processing.
SBA states that OHA has jurisdiction over appeals where SBA has provided the borrower with a PPP final loan review decision finding the borrower:
Learn more about how to appeal an SBA PPP forgiveness denial, here.
The criteria for an appeal filed with the SBA are strict. According to SBA, appeals must contain:
Due to the strict criteria of the appeal, we recommend hiring a qualified attorney to represent your business and help you to create a strong, successful appeal.
An identified legal representative of the business or a qualified attorney must represent the appeal since the SBA PPP loan is a business loan and not a personal loan. To represent your business, one must be:
The following positions are not legally entitled or allowed to represent businesses in the SBA appeal process:
Any appeal denied in the Office of Hearings and Appeals will have to go to a higher court. Why? Because SBA is a federal agency. The process of going to federal court can be extremely tedious and expensive due to the strict regulations.
To avoid the costly and time-consuming process of going to the federal district court, we recommend hiring a qualified attorney to make sure you’re building a strong appeal for your business.
While each case is unique and this is not an indication of success in other cases nor a promise of results, our team at Milikowsky Tax Law has extensive experience in government audits and cases involving government entities from IRS to SBA and CSLB.
Contact Milikowsky Tax Law and learn how we can help.
745 N Vulcan Ave
Encinitas, CA 92024
(858) 450-1040
The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create (and receipt or viewing does not constitute) an attorney-client relationship.
© 2022 Milikowsky Tax Law
site designed and maintained by digitalstoryteller.io
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