Will you get audited by Uncle Sam’s IRS

Read Time:3 Minute, 9 Second

<img src="audit.jpg" alt="Will you get audited by Uncle Sam's IRS">

Let’s be honest now.  Who really loves the IRS?  I suspect if we did a nationwide survey we would find more adults believing in Santa Claus than loving the Internal Revenue Service (IRS).

The numbers probably diminish when you start asking the folks who have undergone an IRS audit. I’ve been audited twice (the easy paper variety) and I still appreciate the IRS (love might be too strong a word), but my tune would probably change on a full-fledged audited with a revenue agent.

It’d be easy to cast the IRS as the villain, as a heartless entity seeking to punish honest hardworking people, but at the end of the day, the IRS is concerned about one thing: generating revenue. They don’t make the tax laws; they simply enforce and collect on them. With all the political talk about debts and deficits, you’d think more politicians would laud the IRS for their efforts to more accurate collect tax revenue … right?

Our tax system is heavily based on honesty. Despite the rise in electronic and paper trails, a lot of our transactions are still conducted without any written record whatsoever. When you buy something at the local bagel shop with cash, that money may or may not be recognized when the shop does its taxes. The tip you leave for that nice waiter or waitress might not be recognized. So the IRS has a difficult task of trying to accurately collect tax revenue, and audits just one of the mechanisms it uses.

Audits are, for the most part, not random. The IRS published a page back in 2006 that explained how the IRS chooses which tax returns to audit. It comes down to four categories:

Computer Scoring: The IRS uses two scoring functions to calculate the likelihood that you under-reported income, based on models they’ve built using historical data. This alone doesn’t determine whether you will get audited, but a higher score on either function means you’re more likely to be examined (that’s the polite word for audited.)

Information Matching: Since the IRS gets your W-2s and 1099s, it can match them up with your return to see if the numbers add up. A mismatch will trigger an audit, usually a CP2000 paper audit.

Relationship-Based: If you have a relationship with someone, usually a company, that is audited, you might be audited as well. For example, let’s say someone paid you and issued a 1099-MISC but their return was audited. You might face an audit because you were issued a 1099-MISC.

Participating in Tax Avoidance: This is a version of the relationship-based case, but one that bears separate discussion because it’s becoming more and more common as enforcement picks up. An example is the recent Justice Department case against Swiss bank Wegelin & Co. that charged three bankers of tax fraud; you might be audited if you have an account at the bank.

In my case, both audits were the result of information matching. In the first case, I never received a 1099-INT from an online bank and the penalty was a few dollars of interest. In the second case, information on a 1099-MISC was included on a corporate tax return and then reflected on a Schedule K-1, but the IRS expected it to be on a Schedule C, so there was no net additional tax there.

In both cases, it wasn’t the IRS being mean… they were simply doing their job.

Jim Wang who writes about personal finance at Bargaineering.com. When he’s not tackling money issues, he’s usually looking forward to his next vacation and writing about it at Wanderlust Journey.

Follow MadMike’sAmerica on Facebook and Twitter and don’t forget to visit our HOME PAGE!

 

About Post Author

Professor Mike

Professor Mike is a left-leaning, dog loving, political junkie. He has written dozens of articles for Substack, Medium, Simily, and Tribel. Professor Mike has been published at Smerconish.com, among others. He is a strong proponent of the environment, and a passionate protector of animals. In addition he is a fierce anti-Trumper. Take a moment and share his work.
Happy
Happy
0 %
Sad
Sad
0 %
Excited
Excited
0 %
Sleepy
Sleepy
0 %
Angry
Angry
0 %
Surprise
Surprise
0 %
0 0 votes
Article Rating
Subscribe
Notify of

1 Comment
Newest
Oldest Most Voted
Inline Feedbacks
View all comments
MollyParker1666
12 years ago

I got a letter the other day, and the envelope said IRS and it scared me wheezy, until I opened it and it was just a random notice about something not my return. Scary people.

Previous post Politics 2012: Time To Get Our Game Faces On
Next post The Green-Banded Broodsac – Leucochloridium paradoxum
1
0
Would love your thoughts, please comment.x
()
x