No doubt, a lot of low-income (or those who claim to be low-income) cheat on their taxes. A huge trend we saw (and continue to see the results of) is audits of those whose reported income was so low, they were entitled to Earned Income Credit.
Oftentimes, these folks call us and ask us what to do — they have no money to pay the assessment. The answer tends to be to put them into non-collectible status. They debt doesn't get wiped out (until the statute of limitations expires), but the IRS stops bothering them for the money.
So you can see a very difficult administrative problem in auditing low income individuals. The IRS spends A LOT of resources to correct under-reporting, but a lot of these people will never pay the entirety of the audit bill. To quote on of my sister's favorite sayings "the IRS is chasing good money after bad."
The IRS reports a shift in policy. Appointee of former president George W. Bush, IRS Commissioner Douglas Shulman:
"Our long-term investment is to have a trend where wealthy individuals, large corporations, (those) who have really benefited from being in the United States, we're going to make sure that they pay their taxes."
So, not really a bad time to make sure you know where all your personal business records are. Spend a little time organizing and making sure nothing is missing. Successful audit representation largely depends on what your CPA or attorney can document.
