The use of numbers in advertising is sometimes comical – even more comical than having to deal with an Internal Revenue Service representative on the phone. You’ve probably heard the commercials that say something along the lines of “9 out of 10 dentists will tell you to brush with XYZ-brand toothpaste”. Or, web hosts will often advertise 99.9% uptime.
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 thousands 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 but I am and can give you a free consultation to see if you are at risk for larger IRS problems.