IRS Audit Checklist For Form 8833

If you are a nonresident alien and wish to use an income tax treaty to lower your taxes, Form 8833 must be filed. This form is known as Treaty-Based Return Position Disclosure under Section 6114 or 7701.

But if you fail to file this form and the IRS conducts an audit on you, will they disallow your treaty-based reporting position?

1. Review Your Tax Return
Once selected for an audit, your first task should be reviewing your return and compiling any relevant receipts to support any claims you made on it – for instance if you claimed charitable donations, office expenses or any other deductions such as bank statements as proof.

Also be wary of activities and behaviors that could set off an audit, such as filing late frequently or deducting large amounts for equipment expenses on your return. The IRS could take notice and initiate an audit if these patterns and activities continue.

If you claim treaty benefits on your return, Form 8833 must also be filed to make this disclosure under sections 6114 or 7701 and provide a summary of those positions.

2. Review Your Records
Typically, the IRS scrutinizes any records supporting your reported income on your tax return, such as accounting systems and records management programs, bank accounts and physical documents that substantiate expenses claimed on a return.

Your audit’s scope may dictate additional business records you should review; for example, you might require third-party affidavits from witnesses who can attest to your claims being accurate, or provide supporting documentation for unexplained bank deposits.

At an office or field audit, it’s essential that all requests for information or documents be responded to promptly and in a timely fashion. Furthermore, you should advocate your tax return positions before the IRS and request waivers where there’s reasonable cause.

3. Review Your Financial Statements
If the IRS audits you, they will request proof for all claims you made on your tax return, including financial statements that pertain to deductions or credits that were claimed as well as insurance records that demonstrate property loss or theft.

Maintaining accurate records is especially crucial for businesses that accept cash payments, such as nail salons or restaurants. They may face auditing for underreporting of income.

Entertainment and travel expenses that exceed acceptable levels could trigger an audit, so to protect yourself it is wise to keep all receipts for all expenses incurred and only claim those which are legitimate – this will save both time and money in the long run.

4. Review Your Business Plan
A business plan serves to communicate a company’s goals, marketplace needs and how their products and services uniquely fulfill them. It outlines their legal structure as well as ownership and management team details; additionally it should contain sections outlining any human resource requirements such as external consultants or outside experts.

In office or field audits, your business plan can also help prepare you to answer in-depth IRS questions about its activities and finances. However, for optimal results during an audit it would be wise to entrust this section of preparation to an experienced tax professional handling the audit.

At the conclusion of an IRS audit, they will issue a report and letter proposing adjustments. If you disagree with their results, you have 30 days to appeal through H&R Block; their tax professionals can provide guidance in this process.

5. Review Your Accounting Software
As the IRS favors contemporaneous recordkeeping, it can be essential for US expats living overseas to keep accurate records using accounting software. If they’re concerned about receiving too many IDRs (information document requests), software utility programs can help reduce backup files by compressing nonaudit years’ data – just make sure you document any such changes and explain them to their agent!

Though not explicitly supported by the IRS, agents are trained on how to protect confidential taxpayer information and face disciplinary action for any unauthorized disclosures. So if your client is reluctant to give all software files at once, consider having a discussion with your examiner about providing all files – then, if your client agrees, Snow recommends including this authorization in your engagement letter.