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tax audit, San Jose tax audit attorney, tax lawyer, tax returns, DIF systemThe prospect of being audited by the IRS is rather frightening, and many taxpayers do not know what to expect in a potential tax audit. However, only around 1 percent of people who file taxes are audited, and there is a great deal of confusion about what makes an audit likely. When filing a tax return, it is important to understand what the IRS looks for when deciding who to audit.

The DIF System

The IRS uses automated scoring known as the Discriminant Information Function (DIF) System to analyze tax returns. This system compares people’s incomes in a geographic area and looks at factors such as family size, how income is earned, and real estate property values to find any discrepancies that may require an audit. The IRS also uses an Unreported Income DIF (UIDIF) score to analyze whether a person is likely to have any income that was not reported correctly.

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San Jose tax audit attorney, tax audits“You are being audited” are words no person or business wants to hear. Tax audits induce stress and tax professionals are usually needed. Often, taxpayers are concerned that they will discover a large tax obligation or that an audit will take up valuable time.

One of the most important steps you can take in the instance of being audited is to have all supporting documentation on hand. This requires keeping documents for the recommended period of time as well as having an organizational system for these records.

How Long Should I Keep Records?

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San Jose tax attorney, tax deadlineTax returns and all taxes owed for 2016 were due on April 18, 2017. If you failed to file your tax return and make payment of any taxes due, there will be repercussions. 

The best way to minimize the fallout for late filing and paying is to take care of both matters as soon as possible. Penalties and interest will start to accrue immediately, leaving you with an even bigger bill. 

Often, people who do not file on time do so because they have a complicated tax situation. They may have questions that they cannot answer, or they may be worried about a situation because they do not understand it. 

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not filing taxes, San Jose tax law attorneyYou may or may not know of someone who has not filed income taxes. It may be tempting each year to not file with the Internal Revenue Service (IRS); however, such an omission can lead to serious consequences.

California Filmmaker Josh Kornbluth was one of these non-filers. He did not file income taxes for seven years in the 1990s. He stopped filing taxes one year when his tax returns got more complicated after taking on freelance writing assignments. He said that he never got caught, which caused him to continue to not file.

"The first time, I got very nervous," Kornbluth told reporters. "But then I noticed that nothing happened to me. The next day after I didn't file was the same as the day before. It just became sort of a habit not to file."

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tax data breach, San Jose tax attorneyCybercriminals target tax professionals in order to gain access to sensitive client data. With this data, criminals can file tax returns fraudulently and be issued a tax refund. Tax professionals have a duty to keep client data secure. When client data is compromised, tax professionals must take certain steps to protect themselves and their clients. Following certain steps can also help prevent tax refunds from being issued to cybercriminals. 

1. Inform the Internal Revenue Service and law enforcement agencies.

  • Notify the IRS. Your local IRS Stakeholder Liaison will take a report of client data compromise. The liaison will then inform the IRS Criminal Investigation unit on your behalf. It may be possible for the IRS can block the fraudulent returns based on the stolen data. For this to happen, reporting the breach to the IRS must occur quickly.

  • Contact your local Federal Bureau of Investigation (FBI) office.

  • If directed, notify your local Secret Service office.

  • File a police report with your local police station

2. Notify states in which you prepare state returns.

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