The Internal Revenue Servie has done a great job of providing an interactive website to answer your most common tax questions.

www.irs.gov/faqs/index.html

W-4 Questions

How much should I have withheld from my paycheck for taxes?

What is eFile and why should I use it?

For more complex questions, not readily adddressed on the IRS website, feel free to call us at (212) 682-5300.

Questions:
What do I do if I get a notice from IRS?
As an employee, what happens if the IRS determines that I do not have adequate withholding?
What if I don’t want to submit a Form W-4 to my employer?
I heard my employer no longer has to routinely submit Forms W-4 to the IRS. How will this affect me as an employee?
If the IRS determines that an employee does not have enough federal income tax withheld, what will an employer be asked to do?
Answers:
What do I do if I get a notice from IRS?
First of all, don't panic. The news might not be as bad as you think. The first thing most people think about regarding a letter from the IRS is a full and total audit. But the notice you received may be the full extent of your contact with the IRS. There may be a math error on your return that must be fixed or maybe something on your W-2 doesn't agree with your tax return. Such correspondence audit situations can usually be cleared up with a couple of exchanges of information via regular mail. However, your notice may state that one of your past tax returns is being audited in full. In this case, what do you do? The IRS says most people are picked based on a computer analysis to determine which tax returns are most likely to be in error. If you're audited by the IRS this year, you won't be alone. In 1997, some 1.66 million individuals were audited by the IRS, or about 1.5 percent of all taxpayers. As you can see, percentage wise, the IRS audits very few tax returns. Most tax returns singled out by the IRS for audit contain either tax deductions that appear to be too high in relationship to the person's income, or tax items that are erroneous, tax items that require proof or an explanation, or are on the IRS' list of hot tax issues. It is important that the IRS audits tax returns effectively, and the IRS puts a general fear in all taxpayers of being audited to encourage voluntary compliance with the income tax laws. The U.S. tax system depends on voluntary compliance. With today's computers there are now more ways than ever that the IRS can monitor your tax compliance. If Cilibrasi & Associates prepared the tax return for the year under audit, we will ask you for an IRS Power of Attorney, Form 2848, and to forward the audit notice to us. At that point, we will take charge of the review and be your representative with IRS. This is one of the major benefits of having a professional prepare your tax returns! We recommend that you do not call the IRS yourself nor attend the audit. You may unwittingly reveal information that is not required and potentially cause more problems. As a tax professional licensed to practice before the IRS, Joseph Cilibrasi, President of Cilibrasi & Associates can deal with the IRS and attend the audit for you. Depending on the complexity of the return an audit can be expensive. But there is much you can do to minimize your expense. The most important thing you can do is to keep good records. We prepare for an audit by gathering the information used to prepare your return. Some people keep meticulous records and provide us with well organized records and documentation. Others provide a “shoebox” of receipts leaving our staff to organize the information for presentation. Successfully completing an audit in your favor revolves around presenting the auditor with well organized “back-up” documentation of the information used to prepare your return. Obviously, the more work you do in organizing the information the less expensive your audit will be. We suggest that adequate record keeping is a year round effort, not just on April 15. This is essential in the case of an audit. We don’t want you to be surprised by the cost of an audit. It is your right to know, in advance, the approximate cost of any service. A minimum charge may apply in your situation. Please be sure to discuss the expected costs with us. Primary records are bills and receipts, cancelled checks etc. Secondary records may be spreadsheets, mileage logs or other summary information you've kept. Gather information. What if you haven't kept good records for the tax year in question? Go back to that year and try to re-create records as accurately as possible. If you've claimed expenses in certain areas, like medical expenses, it's possible that your doctor or hospital will still have those medical records on file. Don't hesitate to call them. You can also call your place of employment and ask for duplicate W-2s or 1099 forms or check with your mortgage company for interest expenses for that year or your county for personal property taxes paid. Put everything in a neat format, summarized but with supporting documentation. Keep in mind that we will be taking this information to the audit. Take the audit seriously. Realize that the IRS auditor is not your friend. You can be sure of two things with an IRS auditor. First, he/she pays their taxes. Second, there is an implicit assumption that something may have been done wrong, perhaps unwittingly, or you wouldn't have been audited in the first place. But don't be fearful. Be confident that your tax return was correct. We’ve prepared the returned based on information you’ve provided us, we just need to assemble the records to prove it. The good news is that not all audits result in the taxpayer owing extra taxes. There are many audits that prove the IRS actually owes you instead of the other way around. Start now on your record keeping system if you do not have one already. IRS tax audits are often prompted by large business losses over a period of several years, raising the question of how the owner made a living during that time. Large tax deductions for travel, entertainment and automobile expenses that don't appear to relate to the company's sales volume also can trigger an IRS tax audit. Only about 2% of small businesses' tax returns are audited by the IRS nationwide. For a Sales and Use Tax audit, depending on the type of business, you will need some or all of the following business records: 1. Copies of previously filed tax returns with any related reports or work papers used to fill them out. 2. Detailed general ledgers and a chart of accounts. 3. Monthly sales journals or registers. 4. Sales invoices. 5. Resale certificates and exemption letters collected. 6. Federal Income Tax returns for the years under audit. 7. All purchase invoices. 8. Cash disbursement journals or check registers. 9. Asset depreciation schedule or fixed asset schedule. 10. Bank statements and cancelled checks 11. Cash register "Z" tapes. 12. Other records the auditor may identify as the audit is performed. Not all businesses need or have such extensive accounting records. We will determine with the auditor the nature and extent of the records required for your audit. Upon completion of the audit, the auditor will explain the findings and the department's appeal procedure in detail. The audit may result in a deficiency determination, a credit for over paying a tax liability or no financial adjustment because you are in full compliance with the tax law.



As an employee, what happens if the IRS determines that I do not have adequate withholding?
The IRS may direct your employer to withhold federal income tax at an increased rate to ensure you have adequate withholding by issuing a lock-in letter. At that point, your employer must disregard any Form W-4 that decreases the amount of withholding. You will receive a copy of the lock-in letter. You will be given a period of time before the lock-in rate is put in effect to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease your federal income tax withholding. You should send the Form W-4 and statement directly to the address on the lock-in letter. Once a lock-in letter is issued, you will not be allowed to decrease your withholding unless approved by the IRS.



What if I don’t want to submit a Form W-4 to my employer?
Your employer is required to withhold income tax from your wages as if you are single with zero allowances if you do not submit a Form W-4.



I heard my employer no longer has to routinely submit Forms W-4 to the IRS. How will this affect me as an employee?
There is no change in the requirement that employees have adequate income tax withholding. The withholding calculator found on www.irs.gov is available to help employees determine the proper amount of federal income tax withholding. Another useful resource, Publication 919, “How Do I Adjust My Tax Withholding?” is available on the IRS Web site or can be obtained by calling 1-800-TAX-FORM (829-3676). Individuals who do not have sufficient income tax withholding are subject to penalties. The IRS will be making more effective use of information contained in its records along with information reported on Form W-2 wage statements to ensure that employees have enough federal income tax withheld.



If the IRS determines that an employee does not have enough federal income tax withheld, what will an employer be asked to do?
If the IRS determines that an employee does not have enough withholding, we will notify you to increase the amount of withholding tax by issuing a “lock-in” letter that specifies the maximum number of withholding allowances permitted for the employee. You will also receive a copy for the employee that identifies the maximum number of withholding exemptions permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate number of withholding exemptions. If the employee still works for you, you must furnish the employee copy to the employee. If the employee no longer works for you, you must send a written response to the IRS office designated in the lock-in letter indicating that the employee is no longer employed by you. The employee will be given a period of time before the lock-in rate is effective to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee must send the Form W-4 and statement directly to the IRS office designated on the lock-in letter. You must withhold tax in accordance with the lock-in letter as of the date specified in the lock-in letter, unless otherwise notified by the IRS. You will be required to take this action no sooner than 45 calendar days after the date of the lock-in letter. Once a lock-in rate is effective, an employer can not decrease withholding unless approved by the IRS.