There are a few phrases that strike terror in the hearts of even the most courageous people. Phrases like “I’m afraid you’re going to need a root canal,” and “it looks like the problem with your car is worse than we thought,” and of course: “you’re being audited by the IRS.”
Of course, part of the reason for this anxiety and fear is that the IRS deliberately tries to keep a lid on its auditing standards and processes, because they don’t want taxpayers to game the system. Indeed, if you thought that companies like Coca-Cola and Google obsessively guard their special formulas, that is nothing compared to the IRS.
However, there are indeed clues and insights as to the differences between what taxpayers believe, and what happens every day at the IRS. According to the Law Offices of Jeffrey Kahn, whose principal and founder Jeffrey B. Kahn has helped individuals and businesses deal with their tax problems for more than 30 years, here are the top six myths about IRS tax audits:
Myth #1: Only wealthy people get audited.
Fact: While it is true that higher income earners (i.e. over $200,000 annually) tend to be disproportionately flagged, the increasing use of Big Data Analytics and robo-audit systems has led to many lower and middle-income taxpayers being audited than in previous years.
Myth #2: if you get audited, an IRS agent will knock on (or maybe knock down) your door.
Fact: While there was a time when the IRS did indeed send out agents, they simply don’t have the manpower anymore. Besides, they don’t need to. Instead, they send a letter asking for additional information or requesting an interview.
Myth #3: If you owe money, the IRS will come after you ASAP.
Fact: Maybe – but maybe not. Frankly, the IRS is underfunded and understaffed. Depending on how many alarm bells your tax return is ringing, it could be several months or even years before they take enforcement action. Of course, this doesn’t mean you should wait for them to do so. The sooner you hire a tax attorney and address the situation, the better off you’ll be (and you’ll sleep better at night, too).
Myth #4: If you file several deductions and tax credits, you’ll set yourself up for an audit.
Fact: The volume of deductions and tax credits you file is less of an audit trigger, than what you’re claiming regarding categories and amounts. For example, if you claim 100 percent use of a vehicle for business purposes and do not have another vehicle for personal use, then there is a very good chance you’ll be flagged for an audit. On the other hand, if you legitimately qualify for a deduction such as the Earned Income Tax Credit, then, by all means, claim it. Worst case scenario the IRS will ask you for supporting documentation, which you will easily be able to provide.
Myth #5: You don’t need to worry about an audit after getting your tax refund.
Fact: The fact that you have a refund is irrelevant. The IRS has three years to ask questions under normal circumstances. And if they suspect fraud of tax evasion, there is no time limit.
Myth #6: Hiring a tax attorney makes you look guilty in the eyes of the IRS.
Fact: On the contrary, the IRS much prefers it when taxpayers hire a tax attorney, because it makes the administrative process more efficient, organized and streamlined.
The Bottom Line
Being flagged for an audit isn’t unusual, and it’s certainly not the end of the world. Keep the above in mind – especially the point about hiring a tax attorney – and you’ll be on the road to as swift and painless (financially and otherwise) a resolution as possible.