Can an Overlooked Tax Form Result in IRS Audit Correspondence?

Think tax forms are confusing? You’re not alone. A recent article highlights several commonly encountered areas of frustration.

Unfortunately, some common mistakes might also trigger the IRS’ attention. For example, a health savings account is set up with tax savings in mind, including tax-free withdrawals for specified or authorized medical expenses. However, it involves two separate forms. The taxpayer must complete a Form 8889 to document contributions to the account, and the institution that oversees the account must complete a Form 1099-SA to document withdrawals taken by the taxpayer.

When a single tax area requires multiple forms to be completed by different entities, it’s easy to understand how confusion could arise. One commentator recalls a situation where a taxpayer received an audit-related communication from the IRS because she had not included the Form 8889 with her return. However, the IRS had received the Form 1099-SA from the administrator, apparently setting off an audit trigger.

Small business owners may encounter ever more tax troubles. When depreciable assets are sold, there is a way to recapture that depreciation. Similarly, a business may have used a Section 1031 exchange to defer capital gains or losses on the sale of assets. When all the forms are not submitted, a taxpayer may lose out on tax benefits or, worse yet, get audit correspondence from the IRS.

Our Washington, D.C.-based tax law firm has helped countless employers and business owners with tax controversies with the IRS. Visit our website to learn more about our practice.

Source: Accounting Today, “Tax pros share their most confusing forms, clients and more,” Jeff Stimpson, Jan. 16, 2016

Tags: Blog, Audits