Now that the primary tax season is over, the IRS will begin adding data to their massive computers and begin processing the approximately one million audits they will conduct this year. The good news for potential auditees is, in the past, audits were far more frequent than they are today. In the 1960s, almost 6% of Americans had their tax returns audited in a given year. Now, without special circumstances, the odds of the average taxpayer triggering an audit are about 1 in 300. In 2014, of the 240 million tax returns, the IRS audited a record low of 1.2 million returns, largely due to budget cuts mandated by congress. The IRS estimates that because of the budget cuts, they will fail to collect almost 2 billion dollars from IRS tax cheats. It is worth mentioning that 40,000 tax audits resulted in a refund for the taxpayer and about 9-14% of audits result in no change to the tax liability.
If you are the subject of an IRS audit, be honest with your auditor, provide all your documentation, and talk with a tax attorney to represent you. Of course, the IRS does not randomly choose which tax payers to audit. Generally, the IRS places much more resources into law enforcement for high-income taxpayers than it does for low income tax payers. The chance of a taxpayer earning 50,000 dollars is about .8%. The chance of a taxpayer earning more than 10 million dollars is about 30%. There are also things, besides as income, that will attract IRS attention, and it is an excellent idea to make sure you are prepared. A tax attorney can help you prepare for any circumstance that may apply to you.
Besides income, the next thing most likely to trigger an IRS audit is mistakes on the forms. It is up to you, not your tax preparer, to make sure your tax returns are in order, including documentation. You are liable for any mistakes, even those made by a tax preparer. For example, due to the complexity of the Earned Income Tax Credit, there is a high degree of mistakes, fraud, and confusion, even with experienced tax preparers. It is estimated that improper claims cost the government 10 billion dollars. As a result, the IRS may pay more attention to people who claim this credit. Be sure you have airtight documentation, and review the rules of the EITC. Other things that can increase your risk for audits are owning a small business, business use of a vehicle, large charitable deductions, or other risky or unusual deductions. As with everything else tax related, documentation is key.
For more information about how your tax attorney can help you please contact us at 913-735-4829