IRS Audit

[I earned it]

Yes it was, as you can see I'm still stinging from the experiance

[JoeWras]

Quote:

Originally Posted by gauss Thanks for the additional info Texas Proud. I have always been prepared (for the most part) to defend what is entered onto the tax forms. What was new to me, with this post, was that it seems you need to be prepared to defend every bank account transaction also. -gauss

Wow, new to me too. Holy Toledo, I didn't know they went that deep. This is indeed obtrusive.

If the link about the NRP is correct, last year's batch of notifications is probably going out now. Here's to hoping we all don't win this lottery this year.

[FUEGO]

I've had a couple of fat envelopes from the IRS. Once was them looking to garnish wages of a guy I paid for 1099 work years earlier. Like $100-200 total or something like that - very small. I guess they mailed out letters to everyone who had ever paid this guy anything.

The second fat IRS envelope was saying we owed $30k in taxes or something like that because we under reported by $63,000. Turns out a 1099 from a company we worked for had a decimal after 640 and before the 00 so it said $640.00. The IRS computer scanned it as 64000, missing the decimal place. After freaking out, it was relatively easy to get fixed. But facing a huge tax bill like that was scary.

[petershk]

Honestly I have no idea why they waste money doing that. If the goal is to reclaim the most amount of tax revenue with the least amount of investigation I'd go about it all different.

I'd look at your current assets: house, car, stuff as well as big expenses: vacations, jewelry, etc and then look at your stated income. If it fell within some reasonable range, I'd move on. If it didn't I'd dig a bit deeper.

Getting 700-800$ out of people probably costs thousands (the plane ticket for the auditor is probably more than 700 ).

If I walk into your 3m$ mansion and see a 35k tax return with no investment income... Well... That requires some explaining . If you live in a 300k house and paid 50k in taxes , spend 50k a year in expenses and have 5k in deductions and contributions... Is getting that 10$ error really worth it?

I suspect it's because auditors are evaluated in their precision and not their value... So maybe an incentive problem.

When I do my taxes they are sometimes very messy (e.g. right no I live overseas and own a rental in CA which having stock options vest). I'm SURE I made a mistake on my taxes... In fact I got a refund from CA last year because of a reporting error so you can imagine... Getting money from CA is like blood from a stone :-). So I try to fall within somenband of reasonability (I.e. look at what my tax bracket is and make sure my actually paid taxes are within reason). I suspect my return raises every flag there is but if you ask me in 3 years why I withdrew 2000 rmb in Shanghai on August 13th I'd have no clue and no way of finding out



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[JoeWras]

Quote:

Originally Posted by petershk Getting 700-800$ out of people probably costs thousands (the plane ticket for the auditor is probably more than 700 ).

If you are talking about the NRP audit, the point is not to get anything. It is to develop algorithms to determine the future of who are the fat targets.

[braumeister]

I'm pretty sure the majority of audits are handled by old fashioned correspondence; no auditor plane tickets involved.

[petershk]

Quote:

Originally Posted by JoeWras If you are talking about the NRP audit, the point is not to get anything. It is to develop algorithms to determine the future of who are the fat targets.

That kinda makes sense but I'd be skeptical that a process that finds a minor reporting error of small receipts is going to be applicable to things like foreign tax shelters, money laundering, faking business losses and other strategies needed to hide millions.

Then again I'm not informed about it so might very well work . Just seems like the methods that the average person uses to "hide" a few hundred will probably differ materially from someone hiding millions.

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[petershk]

Quote:

Originally Posted by braumeister I'm pretty sure the majority of audits are handled by old fashioned correspondence; no auditor plane tickets involved.

Heh. Prolly true. But it was illustrative. I think random audits as a mechanism of "keeping people honest" might be a good thing... But it seems like it should also be balanced against the cost/value. But I don't really know how that stuff works.

I do know that living overseas creates a lot of additional complexity and anxiety. I had 2 accountants helping me last year and in many cases it's a question of follow rule a and risk problem 1, follow rule b and risk problem 2. The code is sufficiently complex that there is no guarantee of internal consistency so if you get audited in micro detail it's almost guaranteed you messed something up . That's why I try to make sure it's reasonable. I have no interest in even moderately risky "tax optimization." I'd rather pay a bit more than I technically could have and avoid the headache... But I'm sure that I have "mistakes."

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[compworld]

Sorry to hear you had to go through that dude. In the future, you can request your bank to send you a copy of all your deposits. I do this each year in case the IRS ever questions a deposit. Just keep it with your tax returns and you'd be good to go.

[Texas Proud]

Quote:

Originally Posted by petershk Honestly I have no idea why they waste money doing that. If the goal is to reclaim the most amount of tax revenue with the least amount of investigation I'd go about it all different. I'd look at your current assets: house, car, stuff as well as big expenses: vacations, jewelry, etc and then look at your stated income. If it fell within some reasonable range, I'd move on. If it didn't I'd dig a bit deeper. Getting 700-800$ out of people probably costs thousands (the plane ticket for the auditor is probably more than 700 ). If I walk into your 3m$ mansion and see a 35k tax return with no investment income... Well... That requires some explaining . If you live in a 300k house and paid 50k in taxes , spend 50k a year in expenses and have 5k in deductions and contributions... Is getting that 10$ error really worth it? I suspect it's because auditors are evaluated in their precision and not their value... So maybe an incentive problem. When I do my taxes they are sometimes very messy (e.g. right no I live overseas and own a rental in CA which having stock options vest). I'm SURE I made a mistake on my taxes... In fact I got a refund from CA last year because of a reporting error so you can imagine... Getting money from CA is like blood from a stone :-). So I try to fall within somenband of reasonability (I.e. look at what my tax bracket is and make sure my actually paid taxes are within reason). I suspect my return raises every flag there is but if you ask me in 3 years why I withdrew 2000 rmb in Shanghai on August 13th I'd have no clue and no way of finding out Sent from my HTC One_M8 using Early Retirement Forum mobile app

I guess you did not read the link..... they do this sample to FIND what people are cheating on their returns.... it is not to try and get $800 from the OP....

So, if they find that 10% of people are cheating on home office deductions, they weight that high in their list of things to look at on every audit they perform... I remember when I was just out of college and doing tax work, if you put in a home office deduction you were just asking the IRS to come audit you...

People change, how they cheat on taxes change.... they have to look to find out what people are doing....



Edit to add since I read posts after this.... it is not the one small tax return that they care about, it is the total group from the random ones picked.... as I mentioned before, they did an audit on a 1040EZ..... and also one on one of the most complex tax returns you would ever see... both were chosen at random...

BTW, the program went away for many years.... IIRC, they do not do it every year since the value is not there....

[Texas Proud]

Quote:

Originally Posted by braumeister I'm pretty sure the majority of audits are handled by old fashioned correspondence; no auditor plane tickets involved.

From what I have read/heard, the majority of audits are by mail... they send out a letter stating something and you get to respond to it... by either fixing the problem, paying what they say, or explaining it so they understand....

[jkern]

If the link about the NRP is correct, last year's batch of notifications is probably going out now. Here's to hoping we all don't win this lottery this year.[/QUOTE]

Are the NRP Audits still happening or was it for a specific time frame?

[Slow But Steady]

I was audited once, just for my charitable contributions. I guess they were higher than the IRS averages for our income level. I had receipts for everything, but they didn't like the receipts for used clothing and the like given to Goodwill or Purple Heart. I sent explanatory letters, but they just disallowed them by checking a box.

Finally I gave in and just paid the couple hundred dollars. I got the impression that these auditors take it personally if they can't find something. Or maybe they get demerits.

Anyway, even the simple audit I went through was an enormous hassle, so I can't bear the thought of being the subject one of the NRP audits.

[JoeWras]

Quote:

Originally Posted by jkern If the link about the NRP is correct, last year's batch of notifications is probably going out now. Here's to hoping we all don't win this lottery this year. ----- Are the NRP Audits still happening or was it for a specific time frame?

I tried searching for the answer, and there is very little information about this program. Congress and the IRS keep messing with it.

It looks like, from the last info available, they went from an "every three year" deal to every year, dropping down from 50k forms to 13k forms.

I'll assume it is still going on. Your chances of getting it are low, but not zero.

Also unclear is how many of the 13k are just desk checked, and how many go the whole way.

[Texas Proud]

Quote:

Originally Posted by JoeWras I tried searching for the answer, and there is very little information about this program. Congress and the IRS keep messing with it. It looks like, from the last info available, they went from an "every three year" deal to every year, dropping down from 50k forms to 13k forms. I'll assume it is still going on. Your chances of getting it are low, but not zero. Also unclear is how many of the 13k are just desk checked, and how many go the whole way.

My understanding (and this was talking to the guy 30 years ago) is that every one picked is audited in person.... even the 1040EZ....

[Bamaman]

My next door neighbor was head of the IRS criminal section for our state--one such position per state. He retired very young and was able to go into private practice representing citizens in tax court--like a tax attorney.

The IRS is not as good at collecting as you'd think. In some Federal Court districts, juries won't convict anyone for tax evasion.

But the funniest thing is that our IRS office was in an obscure unmarked office building and the public wasn't allowed to go in to discuss their cases. And they had an unlisted phone number. They'll find you, but you cannot find them.

Our local IRS office has a bulletproof window, and you have to go through a magnetometer security check to even get into the room to ask a question. And they don't guarantee the accuracy of any answer the employee gives you.

The Fair Tax would do away with this worthless bunch of workers.

[sengsational]

Quote:

Originally Posted by Bamaman The Fair Tax would do away with this worthless bunch of workers.

As long as they let me spend my Roth money without re-taxing it, but I'm not sure how that would look in a law that's supposed to be a simplification.

Quote:

Originally Posted by I earned it yeah NRP audit real unfun affair I felt like al Capone, lost sleep , found cpa he told me not to worry, I felt much better, after I hired him I didn't even get letters he got them, I just wrote the checks.

I'm not sure my approach would be to hire anyone if I was unlucky enough to get NRP'ed. It's not like they're going to find anything to throw me in jail for...maybe I'd pay some extra taxes over what a CPA would have done, but probably much less than I'd pay a CPA. This way, the threat of going back 3 years would have less punch. I'd just walk in with the shoe box and say "ask away", and whatever I couldn't produce then or after however long they give me, I'd get dinged for. Big deal. It's only time, which I have plenty of since I'm retired. Maybe there's a flaw in this approach?

[braumeister]

Quote:

Originally Posted by Texas Proud My understanding (and this was talking to the guy 30 years ago) is that every one picked is audited in person.... even the 1040EZ....

I don't think the NRP existed 30 years ago, so that info might be referring to a different audit program.

I've been audited twice in my life, and both were conducted by correspondence (snail mail). Both were very simple and direct, although they took several months before I got the final "Never mind" letters.

[Texas Proud]

Quote:

Originally Posted by braumeister I don't think the NRP existed 30 years ago, so that info might be referring to a different audit program. I've been audited twice in my life, and both were conducted by correspondence (snail mail). Both were very simple and direct, although they took several months before I got the final "Never mind" letters.

Yes, the program could have been called something else... but basically the same type of program... I dealt with the auditor for months, so I asked a lot of questions...

I know that it went away for awhile...

[Dcharles]

I hope the next president abolishes the IRS, and shrinks our tax code to three (3) pages.......done. What I see from the IRS is nothing more than a corrupt institution that does not know it's own codes. [Mod Edit]


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