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Be prepared: New tax audit rules set to take hold in 2014

Receiving notice of an Internal Revenue Service audit can create anxiety for individuals and businesses, no matter the value of their assets. Even if a person or organization has not knowingly provided inaccurate information to the IRS, it is definitely something to take seriously.

A new audit rule, set to take effect as the calendar turns to 2014, could make the audit process even more stressful for some. Companies or individuals with assets amounting to $10 million or greater will now be subject to very rigid timelines to submit documentation to the IRS.

When tax officials first submit a request for information regarding an audit, the deadlines for submission of documents are flexible. They are determined by negotiating an initial timeline with the IRS. This initial process will not change for any taxpayers at this time. However, parties with significant assets will face a hard, 49-day deadline if the negotiated deadline is not met.

If the 49 days passes without information being submitted, the IRS will pursue a summons. When facing the possibility of an audit, receiving an order to appear in court is not something a person wants to deal with. Oftentimes, audits and related issues are handled outside the context of a court.

Individuals and companies that deal with foreign income and assets may be particularly squeezed by the rule change. Tax law observers note that audits for "transfer pricing" are likely to be particularly affected. Valuing significant assets in different countries can be a time-consuming process, especially since companies want to submit accurate financial information to the IRS.

For the time being, those who do not meet the high-income threshold for the new rule have more flexibility with IRS audit deadlines. This way, people will have an ample amount of time to prepare an audit defense. Still, there may be an overall urge to put the audit in the past and move forward, which can be done with proper guidance.

Source: Reuters, "Hand over tax audit information, clock is running: IRS," Patrick Temple-West, Nov. 22, 2013

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