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.

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.

What To Do After You Miss a Tax Deadline

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.

Consequences of Missing a Tax Deadline

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.

What To Do If You Can’t Pay Your Tax Bill On Time

If you realize you cannot pay your taxes in full, you do have options, such as:

  1. Request an installment agreement with IRS or the California State tax agency;
  2. Contact IRS or the California state tax agency to request an extension to full pay the liability (not through a long-term installment agreement because you only need a couple extra months).

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.

What Are Back Taxes?

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.

  • Read our overview of what back taxes are and how they affect your business.
  • Check out our guide on back taxes and learn how our team can help you resolve them.
  • Browse our expertise and insights on outstanding tax balances, what you need to know about them, and how you can seek professional guidance.

Resolving Your Tax Debt

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.

How to prepare an IRS Bank Deposit Analysis

The bank deposit analysis is essential to every single IRS audit. 

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.

What is an IRS Bank Deposit Analysis?

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.

How to Start Preparing for an IRS Bank Deposit Analysis

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.

The IRS Bank Deposit Analysis Process: How It Works

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.

Sources of Income

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.

Determining Income

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.

Additional Years

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.

Be Careful with Cash

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.

Still Have Questions?

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.

Inflation Reduction Act Law. State gets involved to help the population during the economic crisis
In August 2022, Senate Democrats passed the Inflation Reduction Act, which allocates nearly $80 billion to the International Revenue Service (IRS) and leaves business owners asking: What are the tax implications of this bill? Will there be more audits? How will audits change? In this article, we’ll break down what the Inflation Reduction Act is, where the money is going, the resulting tax implications, what businesses will be targeted, and how IRS audits will change. Let’s dive in.

What is the Inflation Reduction Act?

The Inflation Reduction Act is a climate, health, and tax package passed by Senate Democrats. The bill passed with all 50 Democratic votes in the Senate.  The final version of the act proposes policy changes such as:
  • Climate and energy provisions
  • Prescription drug price reforms, and
  • Taxes on corporations

Will the Inflation Reduction Act Increase IRS Audits?

The Inflation Reduction Act allocates $79.6 billion to the International Revenue Service over the next decade. These funds will increase IRS audits. Let’s take a look at where exactly the money is going. 

Enforcement: IRS is Hiring

According to the 2021 IRS Data Book, IRS in Fiscal Year 2021 had about 79,000 full-time equivalent (FTE) employees, and about 35,000 of them were dedicated to enforcement activity. In 2021, IRS closed about 739,000 tax examinations and processed more than 261 million tax returns and supplemental documents. This number of tax examinations in 2021 was less than half of the number of tax examinations in 2012. So, what does this mean for business owners? IRS is making an effort to conduct more audits than in the past few years and using the additional resources from the Inflation Reduction Act to do so. Let’s take a look at how. With the increased budget resulting from the Inflation Reduction Act, IRS will be expanding its staff. IRS will be hiring additional:
  • Revenue agents (to conduct audits)
  • Criminal Investigators (to carry out criminal investigations), and
  • Revenue officers (to collect taxes)

Operations and Developments

The remaining additional funding will be used for:
  • Technology
  • Development of a direct free E-file system 
  • Operations, and
  • Taxpayer services
According to recent estimates from the Congressional Budget Office, those improvements are projected to bring in $203.7 billion in revenue from 2022 to 2031.

What Sizes of Businesses will be Impacted by the Inflation Reduction Act?

What businesses will be impacted by the Inflation Reduction Act? Let’s discuss.

Large Corporations and the 15% Minimum Corporate Tax

Large corporations with profits over $1 billion will be impacted by the Inflation Reduction Act. The bill imposes a 15% minimum tax on adjusted financial statement income for these corporations. Businesses owned by private equity would be exempt from this tax and the Joint Committee on Taxation projects that the tax would affect approximately 150 corporations. While the current statutory corporate tax rate is 21%, around 200 or more large corporations use tax loopholes to avoid paying that rate and pay below 15%. The bill will target these corporations. This provision would be effective for taxable years beginning after December 31, 2022.

Self-Employed Business Owners Are More Likely to be Audited

Self-employed business owners will be more likely to be audited as a result of this bill. Why? IRS is focused on self-employed people, whose financial situations can become tricky. For example, in these businesses, there are no W-2 jobs with a paycheck; there is just money coming in and going out. This increase in audits means that self-employed people will have to be even more careful in filing the proper forms and providing the correct taxable income.

Why is IRS Making These Changes?

According to Forbes, “the two primary revenue-raising provisions of the bill are a 15% corporate minimum tax and IRS tax enforcement funding, together estimated to raise over $400 billion.” “In total, the bill will raise over $700 billion in revenue over 10 years, including the aforementioned tax changes, as well as taxes and savings from a prescription drug-pricing proposal.”

How Will Audits Change with a Better-funded IRS?

After the Inflation Reduction Act, audits will not only be more common, but also different. Why? The flux of new hires means the audits will be conducted by revenue agents with less experience. For example, according to IRS, a revenue agent “must be trained on the job for at least two to three years to have the experience and expertise to audit a complex return.”

How Can Businesses Prepare for and Navigate These Changes?

You can prepare for an IRS audit by ensuring that you have all of your documentation in order and that you can answer any questions IRS may have. If you are audited, it is important to cooperate with IRS and to provide them with any requested information. If you are self-employed, we encourage you to keep track of income and expenses so you can file a tax return. Consider taking a look at bank and credit card statements for an idea of business expenses. For more, read our ultimate guide to IRS audits.

Hire an Experienced Tax Attorney

In the event of an IRS audit, business owners should consider enlisting the help of an experienced tax attorney. A tax attorney can help to guide you through the process of an IRS audit as well as navigate any issues brought on by a less experienced revenue agent.

Still Have Questions?

Business owners should contact Milikowsky Tax Law if they have any additional questions about how the Inflation Reduction Act will impact them. 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 in 2022.
How to Abate an IRS penalty

There are a lot of different types of penalties IRS can assess. Let’s start with the failure to file. 

Typically, it’s a firm deadline and when you have to file a return. If you don’t file an extension and your return is late, or you do file the extension and your return is late, you’ll get a notice from the IRS that you have a late return. Even if you have a good excuse you will have to substantiate it with documents and evidence of reasonable cause.   

Some examples of excuses that don’t work on the IRS:

Saying your CPA promised to file the return on time and they missed the deadline. Simply indicating to the IRS that you had a CPA that missed a deadline is not enough, because IRS feels that it is your responsibility, not the CPA’s to know when to file the return.  If it’s something more of a technical nature and you file the return with an error on it, and it’s really more of a legal question or super technical tax question, if you get a penalty for that for misreporting something, you might be able to argue reasonable cause because you relied upon a tax professional. Get a letter from your CPA, tax attorney, or whoever gave you the advice in question, and IRS will then consider that and potentially, abate the penalty  

What does it mean to abate a penalty? 

Removing the penalty in the terminology of the IRS is abating the penalty. When requesting penalty relief, that is what you want to ask for, “penalty abatement”.  Missing a filing deadline is very difficult. We had a client for whom we were able to get an abatement fro for a missed deadline, but you really have to show that even though you took all reasonable measures and acted like a prudent person, you still couldn’t meet the deadline.  There have been cases of people that have been incarcerated, out of the country, and a number of other excuses that do not qualify. Because you can always file a tax return with the US Embassy in a foreign country.   

Carefully consider what the facts are and respond to the notice even if you don’t have a good reason for your missed deadline. 

  Always be truthful, gather your evidence, provide your documents. Third-party records are better if somebody can substantiate,your evidence with a declaration or a note from that person.  Be sure to respond within the correct timeframe. In the notice, it’ll indicate how much time you have to respond. It’s typically 30 days, but it could be as short as 15 days or even less. Different penalty notices have different deadlines. Make sure you don’t miss that deadline on top of the missed deadline for which you have been assessed a penalty.   

Asking for more time from IRS 

If you got the letter or notice late, or you just are unable to gather the evidence in time but you really do want to respond, you can write a letter to the IRS requesting an extension to respond to the penalty notice. The extension is not guaranteed, IRS can still deny your request and assess the penalty. But if you are in a bind, and you want more time, it can’t hurt to request additional time. Typically they will grant you an extension.   

Keep supporting evidence of correspondence

Post-COVID, IRS is so far behind on mail that they might actually generate a notice indicating you didn’t respond to the penalty letter and assess it to you, even though you did send a letter before the deadline. So be cognizant of that and register the mail you send, take a time-stamped picture of the correspondence or find a fax number. Faxing to the IRS is the quickest way for them to get the notice (don’t forget to keep your fax confirmation). Whether you respond to the penalty notice or you ask for additional time, send a certified US mail with a return receipt as well as a fax. And if you don’t have a fax number on the notice, you can contact IRS directly and ask them if there’s a fax number for the department that generated the notice.   
Attorney reviews options for handling back taxes
Many people don’t know the options that are available to them when dealing with back taxes and the IRS.  Back taxes are a nightmare for anyone that owes the IRS money without the means of paying it. If you are already in debt, the IRS banging on your door doesn’t help your situation—it just makes it more stressful.  If you owe a lot of back taxes, you don’t have to panic; you have options. Let’s discuss.

First, What Are Back Taxes?

Back taxes are “taxes that have been partially or fully unpaid in the year that they were due. Taxpayers can have unpaid back taxes at the federal, state and/or local levels. Back taxes accumulate interest and penalties on a regular basis.”

Understanding Back Taxes

Back taxes refer to taxes owed from a prior year.  A taxpayer may be behind in paying taxes for intentional or unintentional reasons. Some of these reasons include:
  • Filing a return and failing to pay the tax liability
  • Failing to report all income earned during the tax year
  • Neglecting to file a tax return

What Happens if a Taxpayer Doesn’t Pay Back Taxes?

Unpaid back taxes can be a serious issue for many taxpayers who don’t have the means to pay them.  If a taxpayer does not pay back taxes they owe, they can face a range of consequences from the government. Some strategies the government may use to get a taxpayer to pay back taxes include:
  • Pressing charges
  • Demanding the taxpayer pay immediately 
  • Offer a voluntary disclosure program (to help avoid criminal charges)
  • Offer payment options
If back taxes are not paid, some consequences may include IRS:
  • Seizing property
  • Seizing assets
  • Placing liens on the property
  • Placing a federal tax lien to inform other creditors of the taxing authority’s legal right to a taxpayer’s assets and property.
  • Garnishing a taxpayer’s wages and to levy their financial accounts, seizing up to the total amount of taxes owed. 
Failure to pay taxes can also involve imprisonment. However, if you owe back taxes, you don’t need to panic. Let’s take a look at some of your options. 

What Are Your Options For Handling Back Taxes?

Some solutions our San Diego back tax attorneys can provide include:

A Payment Plan 

Agreeing on a monthly payment amount that is feasible and not strenuous can make all the difference. Our tax lawyer can help facilitate an agreed amount that works for both you and the IRS.

An Offer in Compromise 

An offer in compromise allows you to settle your debt with the IRS for much less than what you owe.

Declaring Non-Collectible

When you declare non-collectible, the IRS immediately stops trying to collect from you for approximately one to two years.

Abatement of Penalties

Through this method, you can seriously reduce the amount you owe the IRS, by reducing the costs of the penalties and interest against you.

Contact Milikowsky Tax Law

If the IRS is telling you to pay your back taxes in a payment plan you can’t afford, contact our San Diego back tax lawyer today. Our legal team at Milikowsky Tax Law is well-versed in tax law procedures and options; we are ready to assist you through this difficult time.  Our committed tax law firm can answer your questions, explain your options, and guide you towards the best game plan for you. At Milikowsky Tax Law we are experts in providing legal counsel for dealing with unpaid taxes.
Before responding to an IRS audit letter, first identify the following five things: the taxpayer, revenue agent, tax years audited, triggering issue(s), and the deadline.
As a small business owner, you may be wondering what the process is for an IRS audit. An IRS audit is when IRS reviews your tax return to ensure that you have reported your income and expenses correctly. The founder of Milikowsky Tax Law, John Milikowsky, breaks down the process of an IRS audit for small business owners. Check out the video below for more information:
In this article, we will review the various stages of an audit as well as information you can obtain from IRS during an audit to ensure that your tax return is correct. 

The IRS Audit Process

The process of an IRS audit can feel overwhelming for a small business owner. However, it doesn’t have to be. Let’s take a look at each step of the process.

The Audit Letter

An IRS audit starts with an audit letter that is generally sent to the business owner or taxpayer. This letter will include:
  • The name of the assigned revenue agent
  • The telephone number and fax number of the revenue agent
  • The number of days you have to respond to the revenue agent
Business owners should pay careful attention to the number of days they have to respond to the revenue agent. This is important in continuing the audit process efficiently and cooperating with IRS. 

What If You Need More Time to Provide Information to IRS?

It is important to respond to the audit letter, even if just to request more time. If you do need more time, you can request an additional 30 or 60 days. Typically, they’ll give you 30 days to respond, have an interview, and meet.  During this time, you will want to consider hiring a professional to help guide you through the audit process.

Consider Hiring a Tax Attorney or CPA

As you collect information for IRS, you can choose to enlist the help of an experienced tax attorney or a CPA. We’d recommend a tax attorney because any communication you have between your attorney is protected under attorney-client privilege, whereas it’s not protected by any other tax professional or CPA. 

Initial Document Request

If you’re being audited by IRS, one of the first things they’ll do is send you an Initial Document Request (IDR). This request will list all of the documents and information that the revenue agent needs in order to complete the audit.  If you don’t provide this information, IRS can summon the information. For instance, if you don’t provide your bank statements, IRS can go directly to your bank to obtain them. If this occurs, within 30 days, IRS can obtain your bank statements, canceled checks, and deposited items. 

Second Initial Document Request

After you respond to the IDR, IRS will have another discussion. If IRS does not feel that they have all the information they need or if you failed to provide all requested information, they can issue an additional Initial Document Request. This process can continue with as many document requests as they need based upon the number of alleged issues on your tax return. And if they don’t feel that you provided all the information, they’ll issue another IDR, typically IDR Number Two, and it could go up to as many IDRs as they need based upon the number of issues that they’re looking at on your tax return. 

Interviews With the Taxpayer

After you provide all necessary information to IRS, they will typically conduct an interview. At Milikowsky Tax Law, we attempt to schedule the interview at the end of the audit or not have one at all. That being said, sometimes it is an unavoidable step in the process. 

An Interview May Come With a Summons

If IRS wants to interview you and it is an important part of their audit, they can submit a summons. If you disregard this summons, IRS can file an action in the federal court to require you to appear and provide the documents or any other testimonial information. This step depends upon how important an interview is to resolve the audit.

Revenue Agent Report

After the business owner and IRS have exchanged information through the audit letter, IDR(s), and an interview, taxpayers will typically receive a Revenue Agent Report (RAR). The Revenue Agent’s Report is a detailed document describing an IRS examiner’s audit findings.  Additionally, the Revenue Agent’s Report states “the amount of deficiency or refund the agent finds the taxpayer to owe or be owed, respectively.” Learn more about how to read a Revenue Agent Report, here.

Audit Conclusion: Respond to the Revenue Agent Report

Typically, a business owner will have 30 days to respond to the Revenue Agent Report. It might be less time, especially if there have been multiple Revenue Agent Reports. Taxpayers have the right to disagree with a revenue agent’s report. If taxpayers disagree, they can challenge the agent’s findings through:
  • A formal protest to the IRS Office of Appeals division by appealing to the U.S. Tax Court, or
  •  Paying the new assessment and then suing for a refund.
If the Revenue Agent’s Report is unchallenged or upheld, delinquent taxpayers may be subject to increased fines or jail time if they fail to reconcile their tax situation.

Facing an IRS Audit?

If you or someone you know received an audit letter from IRS, reach out to our team of experts 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. Have more questions about IRS audits? Check out our full guide, here.
Can IRS summons your bank records
The Internal Revenue Service (IRS) has the power to investigate the finances of a taxpayer if they believe the taxpayer is withholding assets. One tool IRS uses to do this is a bank summons, which is a legal document that requires your bank to provide your bank statements, account balance, and other information to IRS. John Milikowsky, the founder of Milikowsky Tax Law, explains how IRS can summon your bank account records. Check out the video below for more information.
 
  • When IRS can summon bank records, and
  • Notices that a taxpayer is given regarding access to their bank records

Can IRS Summon Your Bank Records?

The short answer is yes. IRS can look over bank records if it believes you are withholding assets.

What is an IRS Summons?

An IRS summons is a legal document that orders a person or entity to appear before IRS to provide testimony or to turn over specified documents or records. The summons will typically include:
  • The name of the person or entity being summoned
  • The reason for the summons, and
  • The date by which the person or entity must respond

Does IRS Summon Bank Records Often?

IRS does typically summon bank records. Therefore, taxpayers should be prepared to provide this information.

Who Does IRS Issue a Summons to?

IRS can send the summons to third parties, and they don’t need a court order to do so. If IRS issues a summons, it can be to:
  • A bank
  • A business associate
  • A company you did business with
  • And more
While there is summons associated with expenses, these requests are typically associated with income. For example, at Milikowsky Tax Law, we have seen some clients deduct a large amount for rent. Then, summonses go out to the landlord to request all the copies of checks that you have paid for rent to your landlord. This request was so IRS could determine where the source of their income was coming from. A situation like this may occur if income is an issue in your audit and IRS sees a lot of expenses being paid, but they don’t see those expenses running through your bank account. The purpose of this request is to see if a taxpayer has another bank account that they have not disclosed.

Is IRS Required to Give Notice When Requesting a Summons?

IRS is not required to give notice before summoning your bank records. However, most of the time they will provide notice. This notice includes information on how to object to the summons and/or provide information on IRS’s investigation.

Do Taxpayers Have to Provide Their Bank Information?

Some taxpayers may not intend to give over their bank statements or produce all of their bank records, canceled checks, and deposit items. However, taxpayers should be prepared to do so; IRS does not have to go to court to get a summons. An IRS revenue agent can issue a summons and send it to your bank, and within 30 days, they will be sent your records from the bank (if the accounts are available).

How Far Back Can IRS Summon Bank Records For?

IRS has a statute of limitations for an audit of three years from the date the return was filed or two years from the date the tax was due, whichever is later. IRS typically conducts audits less than three years from the date of filing, because there’s a statute of limitations; IRS has three years to audit you, and that’s three years from the date you file your return typically. It can be extended if IRS finds a gross understatement of tax. In this circumstance, the limitation could be increased to five years. If fraud is present, there’s no statute of limitations.

Can IRS Access Your Bank Records Without Your Permission?

In some cases, IRS may be able to get your bank records without your permission. This usually happens when IRS is investigating conceivable criminal activity.  However, even in these cases, IRS is required to give you notice before they obtain your bank records.

How Does the Process of an IRS Summons For Bank Records Work?

The Initial Document Request

If you’re being audited by IRS, they’ll send you an initial document request. This request will list all of the documents and information that the Revenue Agent assigned to your case needs to complete the audit. There will likely also be a request to include business bank records. If you don’t respond to that request, IRS can send summonses out.

A Copy of the Summons

Usually, when IRS sends out a summons, they provide you with a copy.

Communication with a Revenue Agent

Typically, when we work audits, we request a revenue agent contact us before they send the summons out. Now, it’s not IRS’s obligation to wait to send the summons out if we request that we work with them and first provide those documents.

Have Questions About Whether or Not IRS Can Summons Your Bank Account?

If you have any questions about whether or not IRS can summon your bank records, you should speak with a professional tax attorney. They will be able to advise you on your specific situation and help determine the best course of action.

The Bottom Line

In summary, IRS can summons your bank information and send the summons to third parties without a court order. They can summons any type of information because the powers of IRS are fairly broad to collect and investigate anything connected with income and expenses that are reported on your tax return.

Consider Milikowsky Tax Law

At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax 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.

On Sunday, August 7th of 2022, the Senate passed the Budget Reconciliation Bill, or the Inflation Reduction Act, which includes nearly $80 billion in funding for IRS. More than half of the funding is set for enforcement. IRS aims to collect more from corporate and high-net-worth tax dodgers.

What will all this mean for taxpayers?

The founder of Milikowsky Tax Law, John Milikowsky, explains the impact from the Budget Reconciliation Bill in detail. Check out the video below for more information:



Read on for an in-depth discussion of the Inflation Reduction Act and its effects.

In this article, we will discuss:

  • The Inflation Reduction Act: what it is and what the money will be used for
  • How these changes will affect audits
  • Red flags IRS will look for to initiate audits
  • How business owners can prepare for the increased IRS scrutiny of their tax returns
  • Any additional taxes the bill will impose
Let’s dive in.

What is the Budget Reconciliation Bill?

In August of 2022, Senate Democrats passed the Inflation Reduction Act, a climate, health and tax package. The bill passed with all 50 Democratic votes in the Senate.  The final version of the act proposes policy changes such as:
  • Climate and energy provisions
  • Prescription drug price reforms
  • Taxes on corporations
However, despite its name, studies show the bill will have little to no impact on inflation.  Forbes deems this act a “slimmed down version of the Build Back Better Bill.” Find a detailed explanation of the Build Back Better bill, here.  Taxpayers should note that this bill has not yet passed in the House of Representatives.

The Budget Reconciliation Bill and IRS

Perhaps one of the most controversial pieces of the act is the expansion of the International Revenue Service. This expansion passed on the claim that strengthening enforcement of existing taxes will raise revenue without having to create new laws.  The Inflation Reduction Act allocates $79.6 billion to IRS over the next decade. Where is this money going?

Enforcement

More than half of the nearly $80 billion is meant for enforcement. IRS aims to collect more from corporate and high-net-worth individuals who have been successful dodging taxes in the past.  Why the focus on these taxpayers? IRS’s audit rates have dropped. In fact, in 2010, it was 16% for high earners but has declined to only 2%. To combat this drop,  IRS will be hiring more revenue agents to do audits, more criminal investigators to do criminal investigation of crimes, and more revenue officers to collect the tax.

Operations and Developments

The remainder of the funding is set aside for:
  • Operations
  • Taxpayer services
  • Technology
  • Development of a direct free e-file system 
  • And more
According to recent estimates from the Congressional Budget Office, those improvements are projected to bring in $203.7 billion in revenue from 2022 to 2031.

What Do These Changes Mean for Taxpayers?

This bill will lead to an increase in the number of audits conducted each year by IRS, therefore increasing the chance that your business will be audited. However, there are steps you can take to prepare. First, let’s discuss which taxpayers are at the highest risk of being audited:
  • High-earners or high-income taxpayers
  • Non-filers
  • Self-employed business owners
Let’s take a closer look at each of these.

High-Earners or High Income Taxpayers

A high-income taxpayer, or high-earner, is defined by IRS as someone who generally receives income in excess of $100,000 during a tax year. However, we typically see audits for high-earners of $200,000, $250,000, or higher. According to Paul Mamo, Director of Collection Operations, Small Business/Self Employed Division at IRS, “The IRS is committed to fairness in the tax system, and we want to remind people across all income categories that they need to file their taxes…These visits focusing on high-income taxpayers will be taking place across the country.”

Non-filers

While non-filers can be considered someone who did not file taxes for a single year, usually we are looking at a taxpayer who has skipped at least a couple years or more. At Milikowsky Tax Law, we have some clients who haven’t filed tax returns for five, six, seven years, a significant amount of time.

Self-Employed Business Owners

IRS is focused on self-employed people, whose financial situations can become tricky. For example, there are no W-2 jobs with a paycheck; there is just money coming in and going out. This increase in audits means that self-employed people will have to be even more careful in filing the proper forms and providing the correct taxable income (but more on this later).

How Business Owners Can Prepare for an IRS Audit

IRS is primarily focused on high earners who do not file tax returns or have not filed for a number of years. If you are a high-earner or you have not been filing your taxes, you are at a higher risk for an audit. You can prepare for an IRS audit by ensuring that you have all of your documentation in order and that you are able to answer any questions the IRS may have. If you are audited, it is important to cooperate with the IRS and to provide them with any information they request. If you are self-employed, we encourage you to keep track of income and expenses so you can file a tax return. Consider taking a look at bank and credit card statements for an idea of business expenses.  Read our ultimate guide to IRS audits, here.

Additional Taxes the Budget Reconciliation Bill will Impose

15% Minimum Corporate Tax 

While the 15% minimum corporate tax mostly applies to corporations that have over $1 billion of income, it can still complicate things for other business owners; The AICPA has sent letters to Congress indicating this could result in some confusion and inconsistent results. Why? Because the 15% corporate minimum tax applies on book income, not tax return income, which are two different things.  Book income is based on your books and records, such as the figures on your profit and loss statement. This can differ significantly from what is reported on your tax return. The two different figures could produce inconsistent results. 

One Percent Excise Tax on Stock Redemption

This bill potentially could assess a one percent excise tax on the stock redemption. This tax on stock redemption may also apply if a corporation buys back its own stock. Find a one-page summary of the Inflation Reduction Act of 2022, here.

Still Have Questions?

Business owners should contact Milikowsky Tax Law if they have any additional questions about how this bill will impact them. We have over a decade of experience working with IRS and tax 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, here.