04 Feb IRS Audit: Beware
The IRS audit and the avoidance of it are hot topics right now. Tax Accountants see audit apprehension in the eyes of anxious taxpayers every year at this time. The IRS audit has had a long time psychological hold over the imagination of taxpayers. “Please audit my tax forms. I think I filed perfectly. Can I arrange an audit?” said NO ONE EVER in the history of US Income tax.
The days of February are accelerating. And Gavrilov & Co kindly reminds you that the Valentine time for hearts and flowers and teddy bears is not far away. And that brings us ever closer to our tax deadline.
The IRS Audit: At An All Time Low
The truth is tax audits are at an all-time low. Still, as our tax squad at Gavrilov &Co reports, anxiety remains at an all-time high. Serious, tremulous, incredulous or bombastic, it seems all taxpayers ask this question with a sidelong glance as if accountants knew the mystery. They ask us, “Uhm, do you know what the chances are that the IRS will audit me?”
So, in spite of the fact that the IRS just re-opened after a government shutdown, only to find 5 million pieces of mail and tons of back work, just how do we answer that critical question?
Let’s look at some of the facts and previous tendencies of the IRS. “Taxpayers whose returns stray far away from the norm or have large, unusual or questionable items can always be singled out for audit.”
Behavioral Earmarks That Provoke IRS Audit
History shows the IRS likes to audit taxpayers who exhibit certain behavior:
1. Good News for Business Owners: We find that individuals get more audits than businesses. For example, all taxpayers as a group shared a statistic recently. “In 2017, the IRS reported,” that you had a 1 in 184 chance of being audited.” That is a 0.542 percent chance of being audited, evenly shared among all taxpayers.
2. Check out Individual’s Odds: For taxpayers filing individual returns, the chance of an IRS audit is 1 in 161. Okay, let’s see, that is .623 percent.
3. Corporations (1120, 1120-S) and partnerships get an audit even fewer times than individuals. As a result, only 1 in 224 corporations and partnerships get hit with an audit. That’s 0.445 percent.
4. Here Fine News for All Tax Payers:
In 2017, the IRS audited only 1 in every 568 employment tax returns. You know, those common Forms named by numbers 940 and 941. You only had a 0.176 percent chance at one of those audits.
Roll Call for Individual Return Audit Rates
We know you really want some facts and figures. How many taxpayers faced an audit out of the 150 million taxpayers who filed in 2017?
- Well, 1 in 19 international taxpayers faced an audit.
- If you had a gross income before deductions of over a million dollars you might have been audited. 1 in 23 such wealthy taxpayers was selected for an audit.
- On the one hand, 1 out of every 48 sole proprietors with a gross income, before deductions, between $100,000 and $200,000 faced the music of an audit.
- On the other hand, if you were a self-employed taxpayer with an income under $25,000 (with a claim of EITC) you had an only 1 in 72 chance of the IRS auditing you.
What to Expect This Year: Who Will The IRS Audit?
This year the IRS has pledged its “audit resources on areas where it knows taxpayers are traditionally noncompliant…” That means you face less chance of inspection if you are ordinary. They are more focused on international taxpayers, high-wealth taxpayers, and they are looking for possible Earned Income Tax Credit fraud schemes.
Ordinary wage earners with nice W-2 forms in place, have much less to fear.
No Fear: ‘Matching Notices’ Come from the Kinder, Gentler IRS
Did you know that not only audits but also special “matching notices” can determine the accuracy of your tax return? One of the things machines do well is arithmetic. And in the last 2 decades, the IRS has entrusted computers to create more and more gifted computers. The IRS has increased usage of double-check systems with computer matching programs. “For example, in the IRS CP-2000 program– also known as the automated–under-reporter program–matches income between tax returns and IRS information to look for discrepancies.”
Matching Notices: An Alter-ego of an Audit
Now if you receive a “mismatch notice, “do not worry, troops of accountants will not storm your house. All that will happen is that the IRS will send you a notice simply asking for an explanation. Now the IRS sends out roughly 3 times more mismatching notices (CP-2000’s) than audits.
Computers and Programs and Challenges, Oh, My!
“Although CP-2000 notices are not technically IRS audits, they allow the IRS to increase its ability to challenge returns far beyond what it can do through people-intensive audits.” Therefore, Gavrilov & Co reminds you, “Yes if you get a “Matching Notice,” it will seem like an audit, no doubt.” The only thing worse would be if you got a “Return Challenge” notice. Beyond that lies a sure and certain Audit.
Accounting Today recently stated, “If you add the CP-2000 matching program to the IRS “return challenge” rate for individuals, the chances of the IRS challenging an individual taxpayer’s return come out to 1 in 35 instead of 1 in 161.
Now, that is a large enough of a statistic to take very seriously. But instead of anxiety about an audit, spend your energy in good paperwork with Gavrilov & Co. Remember, we feature No Fear Filing.
How to Avoid an Audit: Gavrilov & Co Official Advice
Most of our clients avoid getting the attention of the IRS by carefully reporting their income documents. It is not difficult. Collect all income tax forms (Forms W-2, 1099, etc.) to bring to your accountant. You see, your accountant cannot do that for you. We can’t get your private IRS data before the end of the season. We rely on you. You must provide us with the appropriate information. Also, if you have employees and tips, you will find information in one of our previous blogs helpful.
The IRS says an audit can cost the taxpayer between 6,000.00 and 21,000.00. Therefore, Gavrilov & Co wants you to make filing your taxes a top priority in the coming weeks of February.
File Early and Spend Some Refund Dollars on your Valentine
The IRS expects “more than 150 million individual tax returns for the 2018 tax year…” Most of them will arrive before the April tax deadline. In conclusion, file early and avoid panic over a possible audit.
“Through mid-day of Monday, last week, the IRS had already received several million tax returns during the busy opening hours.” If you have questions, be aware they have added several pages to their website, including the popular new hit “e” book, Tax Reform Basics for Individuals and Families.” Thank you for visiting the Gavrilov & Co Blog.
No less important than early filing, we also remind you to shop for your Valentine. Will it be roses, chocolates? Or here’s a well-balanced idea—how about some professional accounting help with taxes?