What Is It?
There are numerous issues associated with IRS audits. As a Travelers employee, you should know your chances of being audited, the different types of audits, strategies for handling audits, your rights with respect to an audit, and how to appeal audit decisions.
Your Chances of an IRS Audit
Typically, only a small percentage of individual income tax returns are audited. Audit rates can vary from year to year, however, owing to several factors, including staffing levels at the IRS. How is a return selected for exam? Often, it's a case of simple computer scoring. When your Travelers federal income tax return is processed, a computer program called the Discriminant Inventory Function (DIF) system assigns a 'DIF' score.
The higher the 'DIF' score, the greater the potential--in the computer program's estimation--that an audit will result in the collection of additional taxes. Your return as a Travelers employee may also be selected. The reasoning behind this is there appears to be a discrepancy with information reported from third parties (e.g., Forms 1099 and W-2), because of one or more specific items reported on your return, or because of any information available that may indicate your return is not completely accurate (e.g., public records, newspaper articles).
As a Travelers employee, it is worthy to note that while there's no way to know exactly what will trigger an audit in a given year, past years have seen an apparent focus on self-employed individuals (especially those running cash-centric businesses), those claiming home office deductions, and those with itemized deductions exceeding the average for individuals with similar income levels. In addition, high-income taxpayers have historically seen a higher degree of examined returns. As a Travelers employee, it may be important to note that you are least likely to have your return audited if you don't itemize deductions, and all or most of your income is subject to withholding.
Types of Audits
There are three basic types of audits that you should recognize as a Travelers employee: correspondence audits, office audits, and field audits. In a correspondence audit, you mail your records to the IRS. In an office audit, you bring in your records to the IRS for examination. In a field audit, the examination takes place at your office or your representative's office. The IRS decides the time and type of audit, with the requirement that the arrangement be reasonable under the circumstances.
What Tips Should You Bear In Mind When Dealing With The IRS?
There are a number of tips you should keep in mind when dealing with the IRS. In particular, you should know your rights as a Travelers employee regarding IRS audits.
Know Your Rights
With the exception of criminal investigations, as a Travelers employee you have the right to an explanation of the audit process and your basic rights at or before the time of your initial in-person meeting with the agent. Your other rights during the audit process include the following:
- The right to representation by an attorney, a CPA, or an enrolled agent
- The right, with advance notice, to tape-record meetings with the IRS agent
- The right to claim additional deductions you didn't originally claim on your return
According to IRS Publication 556, Examination of Returns, Appeal Rights, and Claims for Refunds, the IRS attempts to avoid repeat examinations of the same items, but sometimes this happens. For Travelers employees, if your return was examined for the same items in either of the two previous years and no change was proposed to your tax liability, you should contact the IRS to request that the examination be discontinued.
Keep Good Records
As a Travelers employee, you should keep records of all income (including nontaxable income, gifts, and savings). Likewise, you should keep detailed records regarding expenses and deductions.
Limit Direct Contact with IRS Personnel
Keep direct contact with IRS personnel to a minimum. As a Travelers employee, the less contact you have, the less opportunity an IRS examiner will have to raise unexpected questions. Also, limited direct contact may help to keep the audit focused on the specified issues.
Tip: If you have specific questions or are having difficulty understanding the audit process, consider consulting a tax professional before contacting the IRS examiner. This way, you may be able to avoid the possibility of opening up new issues for audit.
Avoid Particular Mistakes in Your Dealings with the IRS
The following are mistakes you should avoid as a Travelers employee dealing with the IRS:
- Ignoring correspondence from the IRS, or not adhering to instructions and deadlines
- Proceeding before understanding your rights or obtaining representation
- Coming to an audit appointment without records or requested documentation
- Projecting a negative attitude toward the IRS
- Neglecting current tax obligations (e.g., not filing a current year tax return while dealing with an audit of a prior year tax return)
- Signing any documentation without fully understanding it, or having it reviewed by a professional
- Omitting your Social Security number on documents and correspondence
What Are Some Practical Strategies for Handling IRS Audits?
Consider doing the following in connection with an audit of your return:
- Before your initial interview with the IRS agent, retain and meet with a tax professional to discuss strategies and expected audit results.
- Volunteer little or no information to the IRS agent. Simply have your representative respond to the agent's questions.
- Keep detailed records of the materials you submit to the agent, the questions asked by the agent, and the times of these activities.
- Know when it is time to conclude the audit and move the case to the next level. Avoid wasting time by submitting additional information after the agent has made a decision.
- Avoid agreeing to extend the statute of limitations unless you expect a favorable audit report. Extending the statute of limitations gives the IRS agent more time to examine your return and possibly discover more potential problems.
- Settle the audit at the lowest level possible. This way, you save expense and avoid the likelihood of other issues being raised.
- Be thoroughly prepared. Agents generally don't waste time conducting an in-depth audit if they see early on that a taxpayer's records clearly substantiate the items claimed on the return.
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Be Clear on Proposed Changes
As a Travelers employee you should also understand why an IRS agent proposes to disallow an item on a return, to increase an income item, or to make other adjustments. It is imperative to never accept an agent's word on what constitutes the law. Agents aren't experts on all aspects of the tax law. If you are a Travelers employee, you may want to consider seeking another opinion on the law from an attorney or other tax professional.
Negotiations
For Travelers employees, although you can't officially 'bargain' with an IRS agent, unofficial negotiation happens all the time. For example, if there are several items involved in your discussion with an IRS agent, and you are more confident in your position on some items than others, there's room for discussion.
Be Careful About Signing the Examiner's Report
When you sign the examiner's report, you are agreeing that you owe the specified tax. You can't appeal the report within the IRS and can't file a petition in the Tax Court. If the audit is completed and the agent proposes to disallow items to which you feel entitled, don't sign the report.
Tip: If you are uncertain about whether to sign, consider consulting a tax professional before deciding.
Waiving the Statute of Limitations
An IRS auditor may ask you to waive the statute of limitations to allow more time to examine the case. If you refuse to sign the waiver, the examiner will generally disallow all the items he or she wanted to audit and issue a Notice of Deficiency. This Notice of Deficiency requires you to file a petition with the Tax Court within 90 days to avoid having to pay the tax until the Court considers the merits of the case.
Tip: It may be to your advantage not to sign the waiver if there are items on the return that you would rather the agent not probe into during an audit. In the Tax Court, you will still have to substantiate your treatment of the items in question, but you generally won't face the kind of probing that can open up examination on other items.
Tip: You also have the option of asking for a restricted waiver, which extends the limitations period for only a particular item on the return.
Unagreed Issues
Travelers employees must also account for how unagreed issues have long processing times because they go through an internal IRS review process. There is often considerable delay before an agent's report, including unagreed items, is issued. If the IRS appeals officer feels that an issue may not have been treated properly, the case may be returned to the agent, causing further delays. If you need an immediate audit report before completion of the review process, you can request it from the agent or the group manager at the completion of the audit.
How Do You Appeal an Audit's Findings Within the IRS or In Court?
As a Travelers employee, you can appeal the findings of an audit through the IRS appeals office. If you can't resolve the matter there, you can take it to court.
IRS Appeals Office Level
Assuming that you don't agree with an examiner's proposed changes, and don't sign an agreement form, you'll receive a package from the IRS that includes a copy of the examination report, an agreement or waiver form, a copy of IRS Publication 5, and a letter ('30-day letter') notifying you of your right to appeal the proposed changed within 30 days. You have 30 days from the date of this letter to appeal the proposed changes. To file an appeal, you have to follow the instructions in the letter (be sure to follow the instructions carefully, and act within the 30-day period).
The IRS Appeals Office that will hear your appeal is separate from the Examination Division that proposed the changes on your return. Appeals conferences can be done in person, over the phone, or through correspondence. You and your representative should be prepared to discuss all issues in dispute at the appeals conference.
Appealing In Court
If you don't respond to the 30-day letter sent to you after an audit, or if you do not agree with the findings of the Appeals Officer, you'll receive a notice of deficiency from the IRS (referred to as a '90-day letter'). As a Travelers employee you have 90 days from the date of this letter to file a petition with the U.S. Tax court.
Caution: If the 90-day letter is addressed to you outside of the United states, you generally have 150 days to file a petition with the U.S. Tax court.
Caution: You cannot petition the U.S. Tax court before receiving a notice of deficiency from the IRS.
The advantage of appealing through the U.S. Tax Court is that, provided you file your petition on a timely basis, you don't have to pay the proposed tax first.
Tip: If you have a net worth of $2 million or less, meet certain other conditions, and prevail in Tax Court against the United States, you may be awarded litigation costs.
To file suit in U.S. District court or the Court of Federal claims, you must first pay the tax that results from the audit, and then file a claim for a credit or refund with the IRS. When your claim is totally or partially disallowed by the IRS, you'll receive a notice of claim disallowance. At this point, you can file suit. Additional information can be found in IRS Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.
How does the Travelers 401(k) Savings Plan compare to market standards, and what strategies can employees implement to maximize their retirement benefits while working at Travelers, considering the various contribution options available?
Travelers 401(k) Savings Plan Comparison to Market Standards: The Travelers 401(k) Savings Plan offers immediate eligibility upon hire, automatic enrollment, and flexible contribution options between 1% and 75% of pay, with a mix of pre-tax and Roth options. Employees benefit from a generous dollar-for-dollar employer match on the first 5% of eligible pay, up to $6,000 annually. To maximize retirement benefits, employees should consider contributing at least enough to receive the full employer match and periodically review their investment choices with the aid of Financial Engines, an independent advisory firm provided by Travelers.
In what ways does the Travelers Pension Plan provide a safety net for employees as they transition into retirement, and how does participation in this defined benefit plan impact financial planning for retirement among long-term employees?
Impact of the Travelers Pension Plan: The defined benefit Pension Plan at Travelers, funded entirely by the company, provides a secure foundation for retirement with benefits based on age, salary, and years of service. This plan is crucial for long-term financial planning as it guarantees a predictable income stream in retirement, supplementing savings and Social Security benefits. Employees are eligible after one year of service, which encourages long-term commitment and aids in retirement readiness.
What resources does Travelers offer to assist employees in making effective investment decisions within their 401(k) plans, and how can employees leverage these resources to reach their personal retirement goals?
Investment Decision Resources in Travelers 401(k) Plans: Travelers offers resources such as Financial Engines to assist employees in making informed investment decisions within their 401(k) plans. This service helps employees tailor their investment strategies to their individual retirement goals and risk tolerance. Engaging with these resources can significantly enhance employees' ability to grow their retirement savings effectively.
How can employees best understand the interplay between their personal savings and the benefits provided by Travelers, particularly in relation to healthcare and retirement planning as they age?
Interplay Between Personal Savings and Travelers Benefits: Understanding the interplay between personal savings and company-provided benefits is vital for comprehensive retirement planning. Travelers employees should consider how their benefits package, including health care, life insurance, and disability coverage, complements their savings and Social Security. Regular consultations with financial advisors provided through the company can help employees strategize effectively as they age.
What should employees at Travelers know about the eligibility requirements and benefits associated with the company's Long-Term and Short-Term Disability policies as they prepare for a secure retirement?
Understanding Disability Policies at Travelers: Travelers provides both short-term and long-term disability coverage, which is crucial for protecting income in the event of an unforeseen health issue. Short-term disability covers up to 13 weeks at varying pay levels, while long-term disability kicks in for more severe cases, offering up to 60% of base salary. Employees should familiarize themselves with these policies early to ensure comprehensive coverage as they approach retirement.
How does the company's Paid Time Off (PTO) policy under Travelers facilitate work-life balance, and what implications does this have for employees' long-term health and preparedness for retirement?
Benefits of Travelers PTO Policy: The Paid Time Off (PTO) policy at Travelers allows employees to accrue significant time off based on service length, enhancing work-life balance and contributing to long-term health and well-being. This policy supports employees in maintaining a healthy work-life balance, which is crucial for long-term career sustainability and retirement preparedness.
What strategies can employees implement to effectively utilize the Educational Assistance Program offered by Travelers not only for their personal development but also as a way to enhance their retirement planning prospects?
Utilizing the Educational Assistance Program: Travelers' Educational Assistance Program supports employees in pursuing further education relevant to their professional growth and retirement planning. By investing in additional qualifications and skills, employees can not only enhance their career prospects at Travelers but also increase their earning potential for better retirement savings.
How does the Business Travel Accident Plan improve the overall financial protection for employees at Travelers, and what are the claims procedures if an incident occurs while conducting company business?
Financial Protection through the Business Travel Accident Plan: The Business Travel Accident Plan provides a safety net by offering coverage of up to three times the annual base salary, up to $2 million. This plan is crucial for financial protection against unexpected incidents during business travel, and employees should understand the claims procedures to utilize this benefit effectively.
In terms of post-retirement benefits, how does Travelers support its retirees concerning access to resources like financial planning services or health benefits?
Post-Retirement Benefits at Travelers: Travelers supports retirees by offering access to financial planning services and health benefits. These resources are vital for maintaining financial stability and health during retirement. Retirees should actively engage with these services to optimize their retirement lifestyle and financial management.
For employees looking for further information or assistance regarding their retirement plans and benefits at Travelers, what are the best ways to contact the company to ensure they receive accurate and timely information?
Accessing Retirement Plan Information at Travelers: Employees seeking information or assistance regarding their retirement plans can contact Travelers' Employee Services Unit via email at 4-ESU@travelers.com or by calling 800.441.4378. Utilizing these channels ensures employees receive accurate and up-to-date information about their retirement benefits.