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Three steps when IRS questions a deduction

You have likely heard the adage "innocent until proven guilty." Although this holds true in most criminal cases, it does not apply to investigations by the Internal Revenue Service (IRS).

How are investigations by the IRS different? Taxpayers generally bear the burden of establishing innocence when audited by the IRS. If the IRS questions a deduction, the taxpayer must provide evidence to support the claim. 

So how do you meet this burden? These three steps can help you defend a tax deduction:

1)   Expense. First, keep copies of the deducted expense. A copy of a bill will generally suffice.

2)   Payment. Next, keep documentation to show the expense was paid. A receipt or credit card bill could work.

3)   Qualified. Finally, establish the expense qualified for a deduction. This can include business expenses, charitable contributions, student loan interest payments and certain moving expenses as well as dependency exemptions to name a few.

All three steps are needed. A failure to establish any one of these steps can result in a loss of the deduction.

It is generally best to gather and present evidence to the IRS that address the exact questions. It is wise to avoid providing additional information as this can lead to an extended audit. 

Do I need a lawyer? In some cases, getting a lawyer is a good idea. This can include cases where the IRS does not rule in your favor and you are considering an appeal. You can help further mitigate the risk of additional questions and protect your interests by seeking legal counsel. Our attorneys at Goldburd McCone, LLP can help.

 

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