IRS Audits

From, 5 things to know about getting audited:

Those selected [for an audit] tend to be self-employed or have unusually large write-offs...

Well, since that describes approximately 99% of local contractors, a little preparation wouldn't hurt.  CNN's tips:

  • The frequency of audits is increasing.  With government spending shooting through the roof, and claims that Americans' tax bills have hit the lowest level since 1950 that's not likely to turn around any time soon. 
  • Don't delay your response.  Like a lot of government procedures, failing to respond promptly means the IRS will assume that they're right, and they're not shy about imposing penalties and interest.
  • Get a pro.  Something's kind of messed up about a system imposed on every American that requires an industry (tax accountants and lawyers) worth billions of dollars to translate, but that's the way it is.
  • Don't volunteer information.  A couple of years ago, I remember the IRS was hoping to project ``a kinder, gentler image."  But, that doesn't change the fact that their position in an audit is the same as a cop interrogating a suspect.  You have to answer their questions (and usually with supporting documentation); you don't have to weave the rope that will be used to hang you.
  • The boss can usually negotiate.  It would be nice to have a black-and-white tax code, but we don't.  There's still a lot of judgement calls to be made, especially when it comes to the complicated finances of the self-employed and business owners.  The IRS is no different than any big business:  front-line employees have very little latitude.  But, their managers may be able to negotiate, and "IRS officers will consider the 'hazards of litigation'".

Follow the link at the top of this blog for the entire article.