Answering to An IRS Audit, And Other Inside Advice
Should you fear the Internal Revenue Service?
Not if you know your rights as a taxpayer and you respond to the first notice you get from the IRS, says Scott M. Estill, a tax attorney.
That's part of the nonconfrontational advice Estill offers in "Tax This! An Insider's Guide to Standing Up to the IRS" (Self-Counsel Press, 2007 edition, $21.95).
"No tax situation is hopeless," writes Estill, who is a former senior trial attorney for the IRS.
Many tax situations deteriorate because people don't know about the options available to them. If you are facing an audit, haven't filed a tax return in years, or received a tax bill from the IRS, pick up "Tax This!" It's my May recommendation for the Color of Money Book Club.
Estill writes that it's important to overcome your natural instinct to avoid contact with the IRS. Instead, it's vital that you inform the agency whenever you change your address. "You have nothing to gain by trying to hide from the IRS, and you have much to lose by doing so," Estill warns. "It is almost always better to confront any problems as soon as possible rather than waiting for the IRS to catch up to you."
You may be thinking that with all the taxpayers in the country, the chances of the IRS bothering you are pretty slim. Indeed they are, but the IRS has been increasing its enforcement actions. In a report on such efforts, Commissioner Mark W. Everson said enforcement revenue -- the money the IRS gets from its collection, examination, and document reviews -- increased to a record $48.7 billion in fiscal 2006. The number of field audits increased nearly 23 percent over the previous year.
Earn a hefty income? Be forewarned that the IRS plans to be extra vigilant concerning high-income taxpayers. If you earn more than $100,000 a year, you're a lot more likely to be audited than you would have been just a few years ago. "We've put a lot of emphasis in increasing audits in this area because it's critical to ensuring faith in the tax system," Everson said in his report.
The number of audits of individuals with incomes of more than $100,000 surpassed 257,000 in 2006, an 18 percent increase over 2005. That's the highest figure in more than a decade and well over double the 92,000 completed in fiscal 2001. Total individual returns audited increased to almost 1.3 million in 2006 from 1.2 million in 2005.
So what should you do if the IRS comes looking for you? Here are some basic rules to avoid major problems:
· Don't ignore deadlines."Many taxpayers get themselves in unnecessary trouble with the IRS because they don't do something when the IRS wants it done," Estill writes.