Think high-income audits don't happen? Think again. And then — while you're at it — think about it one more time for good measure. Those earning sizable salaries have been the IRS's favorite targets in the past, and high-income earners will be targeted even more frequently in the future.
IRS Commissioner John Koskinen has made it abundantly clear that the IRS is worryingly short-staffed as of late, not to mention that they now have even more responsibilities (think the Affordable Care Act and FATCA). Yet somehow they still managed to collect record revenues. How did they do this? By targeting and auditing high-income earners. Right now they consider a high-income earner to be anyone who reports a total positive income falling between $200,000 and $399,999.
He's in your corner?
We thought that the Treasury Inspector General for Tax Administration (TIGTA) was like the Mike 'Bogey' Boguslawski for the common man, someone who was "in your corner."
(Sidebar: Bogey is a household name in Connecticut and Southern California where, as a consumer advocate, his endearing catch phrase that he's "in you corner," earned him numerous fans. I was one. In fact, I met him once. Way back. I swear he promised my friends and I that he could get Van Halen to play at Lyman Hall High School in 1986. That did not happen. That was the day I learned never to trust anyone).
TIGTA is supposed to investigate IRS oversights, and usually they do a pretty decent job of calling out the IRS on the dumb mistakes (yup, I just said that) that they make. Granted, they don't have big teeth to follow up with a bite after they bark, but they at least nip at the IRS's skirt.
Their report, "Trends in Compliance Activities Through Fiscal Year 2014," left us scratching our heads. The report detailed the following:
"High-income taxpayers are frequently involved in complex entities and financial arrangements that provide greater opportunities for aggressive tax planning. It is important for the IRS to demonstrate that it enforces tax laws by ensuring that its compliance strategies are applied fairly to all segments of the taxpayer population." (emphasis mine)."
Okay, so that sounds good, right? "Let's be fair!" It's a noble sentiment and one that we can get behind.
But wait. After making a good bit of sense, they went and turned everything on its head, "However, the IRS should reevaluate whether the threshold for its High-Income and High-Wealth strategy, set at $200,000, results in an efficient allocation of examination resources. Given the IRS's goal of providing higher audit coverage to high-income taxpayers and its reduced operating budget, it is that much more important that the IRS selects audits that have the highest compliance impact."
On one hand, it sounds like they think that all types of income earners should be audited. On the other, they want to make sure that the high-income earners are targeted. Or maybe I should say the "highest-income earners."
Just what is the IRS thinking?
Here's what's going on: every hour spent auditing a taxpayer with more than $5 million in income nets the government $4,545. Auditing taxpayers in the $200,000 to $399,999 income bracket generates $605 in revenue per audit-hour. We checked with our in-house math expert, and he let us know that there is indeed a BIG difference between those two numbers, especially when you're talking about an hourly revenue rate. Don't believe me? Go ask your boss for a 751% raise.
It's glaringly apparent that the IRS is no longer concerned about compliance and is more concerned about generating revenue. The guys that are supposed to be in our corner agree with that methodology; the burden of collections will now be paid for by a select few.
Always pleasant news we have, isn't it?
The chances of the regular Joe being audited are still low due to short-staffing; just know that if the IRS audits you, you will be tagged with a bill (but note that if you are not a regular Joe, you may experience a higher incidence of audit). They really could use some new press releases about how much money they've been collecting in order to distract everyone from things like the staggering amount of money being scammed from them through identity theft.
If you hired someone to do your taxes, there is a possibility that an error could have been made in the return. There is also a possibility that said person is feeling too proud to admit their mistake and could try to cover it up. We've seen too many innocent people get sacrificed to the IRS gods by the very people that are supposed to be representing them.
Don't be afraid to hire a tax attorney to help if you get audited; a fresh set of eyes is always a good thing when dealing with complicated returns and audits. And don't think that hiring an attorney is going to make you look guilty; in reality it makes you look very smart, and it gives the IRS the understanding that you're someone who won't be pushed around. Hiring professional representation is a sign to the IRS that you understand the severity and importance of the situation and are taking your tax problem seriously.
So, if you're a high-income earner being targeted by the IRS, we understand your frustration. It's important to take a minute and relax. You might be feeling overwhelmed and frightened, and that's completely normal. But after you take a minute to breathe, it's time to jump into action and start the resolution process. Help is always available, and there's nothing we want more than to set you up for a bright future, so contact us.. Call us at 888-727-8796 or email firstname.lastname@example.org.