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Why Does the IRS Audit Taxpayers?

Are you afraid that you might someday receive an IRS audit notice? It’s not always a reason to worry when you receive a notice of audit from the IRS in the mail. An IRS audit can mean the IRS is double-checking your numbers to ensure there aren’t any discrepancies in your return. If you are telling the truth, you likely don’t have to worry about an IRS audit. However, if you have cheated the system, you do have a reason to be concerned. In this blog, Platinum Tax Defenders will explain why the IRS audits people.

Additionally, we will discuss what comes along with being audited, such as IRS audit penalties. Most importantly, if you are currently facing an IRS audit, call the experts at Platinum Tax Defenders today. We have experienced tax attorneys and x-IRS agents who are ready to help.

What Leads To An IRS Audit?

The IRS conducts tax audits to lessen the difference between what the taxpayer owes and what they pay. Tax audits can sometimes be random. However, the IRS usually selects taxpayers for an audit based on suspicious activity.

Reasons for an IRS Audit

The reasoning behind a tax audit can vary. However, several cases may be likely to land you in the face of an IRS audit. Below we discuss some of the items that may lead to an IRS audit. If you feel you have done any of the below, call the experts at Platinum Tax Defenders today for a free consultation.

IRS Audit for Math Errors on Tax Returns

While it’s easy to make mistakes, you must try not to on your tax returns. A simple error as accidentally writing a five instead of an eight can get you in big trouble. Before you file your taxes, make sure you double- and triple-check your numbers. You especially want to double-check your math if you’re doing your taxes. A good tax professional can help you avoid unfortunate errors that can lead to an IRS audit.

IRS Audit for Failing to Report Some Income

If you fail to report some income on your tax returns, the IRS will likely be on your case. The IRS has access to all of your W-2, 1099, and other employment forms. If you hide this information on your tax returns, it’s only a matter of time before the IRS finds it.

IRS Audit for Reporting Large Charitable Donations

You are eligible for deductions if you make significant contributions to charity. However, you should not report false donations. If you don’t have the proper documentation to prove your donation, don’t claim it. If you claim $10,000 on your $40,000 salary, it’s likely to alarm the IRS.

IRS Audit for Reporting Too Many Losses on Schedule C

If you are self-employed, reporting too many losses can arouse the IRS. Make sure you consult with a tax professional on what you should be writing off as your boss. If you report too many losses, the IRS may begin to wonder how your business is staying in business.

IRS Audit for Deducting too Many Business Expenses

In the same token, reporting too many business expenses can alert the IRS and lead to an audit. To be eligible for a business deduction, your purchases must be:

  • Ordinary
  • Necessary to your business

Working with a tax professional will help you understand which expenses you can write off. Writing off too many independent expenditures can lead to an IRS audit.

IRS Audits

IRS Audit for Claiming Home Office Deductions

Another way to set the IRS off for an audit is to claim a home office deduction. Home office deductions are for people who use their home exclusively for their business. Occasionally answering emails on your laptop in front of your TV doesn’t usually qualify as for a home office deduction.

 

Are There Penalties Associated with an IRS Audit?

If you are at risk of an IRS audit, it’s important to note you will likely not escape without owing additional taxes. The IRS does not spend resources on conducting tax audits unless they are likely to gain significant revenue. If you owe more, along with extra taxes, you will likely owe penalties. The amount of penalties will be related to the type of audit the IRS uncovers. Here are several types of IRS audit penalties.

 

Accuracy Related Tax Penalties

If the IRS determines you filed an inaccurate return, you may face accuracy-related IRS penalties. The amount of these penalties is 20 percent of the amount you underpaid. In some cases, you may have to pay 40 percent of your total tax underpayment.

 

Penalties for Failure to File Returns and Pay Taxes

For taxpayers who file taxes or pay taxes late, the IRS will charge a penalty of 5 percent of the unpaid tax. This penalty occurs each month. Up to a max of 25 percent. The IRS can charge a minimum penalty of $135 for returns that you send in more than 60 days late. Filing on time but paying late results in a 0.5 percent penalty of the tax you owe each month. The maximum charged here is 25 percent.

 

Penalties for Civil Fraud

Should your IRS audit result in civil fraud, you won’t necessarily go to jail. However, the IRS will fine you with a 75 percent penalty of any tax underpayment that resulted from your fraudulent activity. In this case, accuracy-related penalties will not apply to taxes owed because of civil fraud.

 

Fraudulent Failure to File Tax Returns

If you deliberately fail to file a tax return, it can mean a civil or misdemeanor criminal offense. If the IRS files criminal charges, you could face a year in jail plus $25,000 in fines for each year you failed to file. The statute of limitations for criminal charges is six years.

 

Willfully Failing to Pay Estimated Taxes or Maintain records

If you willfully fail to pay taxes or maintain records, the IRS considers this a misdemeanor. Civil rather than criminal penalties are applied most often in this case.

 

Filing a Fraudulent Return

If you file a fraudulent tax return, it’s considered a felony. However, filing a fraudulent tax return is less severe than tax evasion. If the IRS finds you filed a fraudulent return, you could face up to 3 years in prison. Additionally, filing a fraudulent return can get you up to $100,000 in fines.

 

Tax Evasion

If an IRS audit results in a tax evasion charge, you could face up to 5 years in prison and up to $100,000 in fines.

 

Facing an IRS Audit? Call Platinum Tax Defenders

If you’re afraid you may be served with an IRS audit notice, or have already received one, call Platinum Tax Defenders today. The experienced professionals at Platinum Tax Defenders have years of experience helping clients get through IRS tax audits. Our experienced team of x-IRS agents and tax attorneys are here to help. New clients can call now for a free consultation. For more information, visit www.platinumtaxdefenders.com or call 866-866-8053.

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