March 01, 2011 | Written by: Mark D. Olander, EA, USTCP
Taxpayers who handle their own IRS audits frequently find the experience so confusing and stressful that they’ll write a check to the IRS just to make it go away. All too often they pay the amount requested in the letter without realizing that they have a good chance of successfully defending their position and owing nothing. This month’s case shows how an Audit Representative from TaxResources makes dealing with the IRS easy and well worth the investment.
The member received a bill from the IRS for over $3,500. He was not surprised at all. In fact, he had purchased Audit Defense while preparing his own tax return because he had a feeling he’d missed something. He’d been audited once before, and representing himself in an audit was something he never wanted to do again.
During his first telephone conversation with his Audit Representative the member explained that he had been knee deep in debt during the 2008 tax year and had obtained debt relief from several credit card companies. Since cancelled debt is considered taxable income under IRS rules, the credit card companies had reported the debt forgiveness to the IRS. The member reported the1099-C’s he’d received on his tax return, but he had not researched the complex reporting rules relating to cancelled debt income. Like most taxpayers, he had just wanted to get his taxes filed as quickly, cheaply and painlessly as possible.
The Audit Representative knew right away how to resolve the audit. After a brief conversation with the member, the Audit Representative determined that he had likely been insolvent in 2008. Since forgiven debt is considered income unless the taxpayer is insolvent at the time of the debt forgiveness, all they needed to do was prove that the member’s total debts were more than the fair market value of his total assets at the time of the debt relief. If the member was insolvent to the extent of the debt relief, he would not owe taxes on the income.
The Audit Representative worked closely with the member to compile an itemized list of all of his assets and liabilities at the time that each of his debts had been forgiven. He sent it along to the IRS along with bank statements and other proof of assets. When all was said and done, the member received a small refund from the IRS.
Thrilled with the results of his audit, here is what the member had to say about his experience with TaxResources:
AMAZING WORK!! I am amazed by how simple it was to work with my Audit Rep. I had been audited before and it was a nightmare. This time around was incredibly easy. I am interested in retaining your firm for every tax year from now on if it is possible...
Want peace of mind?
Pay one low fee to defend your tax return in the event of a future audit.