Everyone hates an audit and one of the only things that makes us feel better about being audited is knowing that the auditor has to look through tons of boring, number-filled receipts to try and squeeze more money out of us.

But now the IRS has just gotten lazier. Much, much lazier.

Thanks to new rules that are currently being explored and discussed, businesses that file taxes will need to list the areas where the IRS might disagree, and those businesses will also need to write in the amount that the IRS will need to be paid if it turns out that the IRS is correct in their assessment.

In short, if these new rules go through, the IRS will basically be asking businesses to do the work for them by requiring them to do a preliminary “self-audit” that will raise red flags for the IRS. That’s like walking up to a thug and saying: “If you hit me here and here, you’ll easily be able to take the $10 I have in my wallet.”

BusinessWeek.com brought this to our attention and they quote one tax lawyer who correctly calls this what it is: a revenue-grab for the IRS. They want to increase their auditor’s efficiencies (who currently spend 25% of their time looking through documentation) and they want to find new opportunities to make money. Instead of using auditors to do the heavy lifting, they are requiring businesses to announce what they could owe if the IRS pressed the issue.

This is terrible news for taxpayers. While it is still currently in discussion and will initially only affect businesses, I can foresee this becoming a widely used tool by the IRS to have taxpayers announce to the IRS: “This is the upper ceiling of what you can audit me for, and here are several ways that you can audit me.”

If this rule goes through, it will be a sad day for American business… And some day it will be a sad day for individual taxpayers, too.

(Image source: John-Morgan)

Related posts:

1. Jerry Seinfeld and His IRS Tax Audit

These statistics tell us something. Namely, they tell us that there’s one rogue dentist out there that didn’t like his free sample of XYZ-brand toothpaste. And, they tell us that your web host service could be down a surprising 525.6 minutes each year (nearly 9 hours of down time).

Using the same statistics, you can get glass-half-full and glass-half-empty points of view. With his typical neurotic wit, Woody Allen once said, “I don’t see the glass as half empty… I see it as half full – of poison.” (From the Woody Allen/Scarlett Johannson movie Scoop).

Each year, the IRS spends several thousand of our tax dollars to compile statistics on the previous year’s tax returns and then offers them up for us to ignore. You can ignore the IRS statistics.

I’m fascinated by a few of these numbers and I’d like to highlight a couple here:

Statistic one: Helpful? Or not helpful at all?

On this page we read that there were 138 million individual tax returns filed in 2007 for the 2006 tax year (not to mention a few million more for various corporate and estate tax returns). And, on the same page, we read that there were 63 million letters, calls, or walk-ins to an IRS office to get help on tax issues. For those with an calculator handy, you’ll notice that those numbers translate into a 2:1 ratio (actually, it’s more like 2:1.2 but we’ll allow that some people might have had to call more than once). So, for every 2 tax returns, the IRS helped someone. I think they want us to believe that they’re helpful. But what it really shows is that our tax forms make no sense to 50% of the population. Can you imagine how any company would survive if 50% of its customers called in because they didn’t understand the user manual? Or can you imagine the chaos on our roads if 50% of drivers couldn’t drive without getting help?

Statistic two: The most expensive letter you’ll ever receive

On tax stats we can download a spreadsheet under the heading “Recommended and average recommended additional tax after examination, by type and size of return” and read about the 2006 fiscal year’s tax returns. According to this spreadsheet, they received 134 million individual tax returns and examined (audited) about 1% of them: 1.3 million tax returns. Of the returns that were examined by correspondence (via the mail, not in person), the average recommended additional tax per return was $8,710! That’s the most expensive letter you’ll ever write. (Still, if the IRS field agent goes into the field to examine the return, the average recommended additional tax per return was $20,419).

If the IRS shows up at your door, they are not there to help you.

No related posts.