Do you worry that you will be audited by the IRS? Well, according to recent IRS audit statistics, you may be able to breathe a little easier.
It was recently reported that annual IRS audit figures are down again for the 12th straight year. In 2016, fewer than 1 million taxpayers were audited by the IRS, which represents a 16 percent drop in audits over 2015. Further, continued cuts to the IRS’ budget are impacting the amount of workers the agency can employ.
Since 2004, the IRS has lost an estimated 17,000 employees — 7,000 of whom were enforcement agents. The IRS’ annual budget was $12.2 billion in 2010, but by 2016 it had been slashed to only $11.2 billion. Further, the IRS has been given more work to do, such as policing the Affordable Care Act (“Obamacare”).
IRS Commissioner John Koskinen told ABC News that the cuts to the IRS’ workforce coupled with lax enforcement have cost the government up to $8 billion annually in uncollected taxes. “We are the only agency if you give us more people and money, we give you more money back,” Koskinen told ABC.
Does this mean that you should take a chance and either not file or take an aggressive position on a tax return? Absolutely not. Just because fewer people are being audited does not mean that you should not file your tax returns or not honestly and accurately report your income or expenses on your tax returns when filed. The IRS can pick a tax return for audit for a number of reasons. Certain items on your tax return may draw suspicion from the IRS or a tax return may be selected at random.
Whatever the reason for an audit, the process is difficult and fraught with danger for taxpayers who are not represented by a qualified tax attorney. An audit is a lengthy and in-depth investigation of a taxpayer’s tax return. Additional information and detailed explanations are normally required, and additional years of tax returns may be requested by the IRS auditor. Further, the audit may be expanded to include other years.
The IRS generally has three years after a tax return is filed to audit that return and to assess additional tax. However, if there is a substantial omission of gross income on the tax return (25% or more), the IRS has six years after the tax return is filed to audit that tax return and to assess additional tax. Finally, the IRS can assess tax at any time if no tax return is filed, or if there is fraud or an attempt to evade or defeat the tax on the return that was filed.
If you receive an IRS audit letter, it is essential to first call a qualified tax lawyer who will help you evaluate your case. The absolute worst thing you can do is to contact the IRS directly. Anything you say can be treated as an admission against you.
Chicago tax lawyer Patrick T. Sheehan can help you every step of the way through the audit process. If you are found to owe back taxes after the audit, we can negotiate a payment plan or an Offer in Compromise that can end with a settlement for pennies on the dollar.
Call us today if you or your business are under audit, if you recently received a letter from the IRS notifying you of an audit, if you have unfiled tax returns or if you owe money to the IRS. Call us, we can help.