Taking A Tax Position


by Michael Lodge

When you file your income tax return you are doing two things, 1) the information you are providing the IRS on your tax return is a tax position, you feel the tax law will support this deduction; 2) taking the tax position you are signing the tax return that under penalty and perjury you feel your tax position is in compliance with tax laws pertaining to your deduction – tax position.

Definition: A tax position is a position that an entity or individual takes in a previously filed tax return or which it expects to take in a future tax return, which it uses to measure current or deferred income tax assets and liabilities. A tax position can yield a permanent reduction or deferral of income taxes payable.

Examples of tax positions are the decision to not file a tax return, to shift income between tax jurisdictions, and to classify a transaction as tax-exempt.

So when you take a deduction on your tax return you are taking a tax position that says you believe this is a legal deduction.  So you should report your tax return in compliance with the law so that you can have a clean tax return.  Now some taxpayers over indulge in their tax reporting, perhaps over stating their expenses, under-reporting income, and the list goes on.  The IRS can audit and challenge your tax position and that is when you have to defend the tax position you chose to take.  Before signing the tax return you should understand the tax positions you took and at all time know how to support the numbers given to the IRS.  Your tax accountant should guide you through the process, the tax returns and the tax positions you are taking – ask questions.  When the IRS sends you that audit letter you should know your return and how to answer it and provide supporting documentation.

You have the right to challenge the IRS on their determination through the audit process, through appeal, and if needed to the U.S. Tax Court.  Always be prepared to defend the tax position you are taking on your tax return.  Also, if you are under audit – don’t talk about it with anyone except your tax representative, don’t post things into social media – shut it down under audit, do not let other people see your tax return.  Let your professional handle it, you don’t want the IRS to use postings from your social media against you, they have a program that gleams information from social websites about you.  It is advisable to shut your social media down when under audit.  Always be prepared to answer the IRS about the tax positions you are taking on your return – document everything.

If you have any tax help you can call our office at:  877.778.1770, and we invite you to visit our website at:  www.icontaxgroup.com