Thursday, November 15, 2012

IRS and Paranoia

Ever since we were audited in 2010, each of the last two years we have received additional correspondence from the IRS after our taxes were completed and our payment submitted.

So, this year, when we received correspondence saying we owe additional taxes I am officially paranoid.  I've done some research and I can't find anything to support my position that once you've been audited your future tax returns receive additional scrutiny.  But, thanks to Jim R. as he found a CNNMoney.com article indicating that if you have been audited in the past you're on the audit hit list for at least a few years.

We are, of course, not claiming the deduction that got us in trouble before, and not (in my opinion) being aggressive in our tax avoidance efforts.  We are, also, paying a CPA to prepare our taxes.  We are paying our taxes on time although we have sought an extension the last few years.

In researching the form we received this year, a CP14, I understand that it is a form indicating an underpayment of taxes not based on a math error.  Often times, individuals receive a CP14 if their tax payment was not received at all.  I know for certain that the IRS received our tax payment because (1) I have a copy of the cancelled check and (2) the amount that is show due on the CP14 is less than a hundred dollars and we paid a ton more in taxes than that.

More than likely, I'll just pay the amount the IRS is claiming that is due because I am terrified of the IRS and do not want to end up being audited again.  But, since I understand (based on my own research) that these CP14 notices are computer generated and are often wrong I've asked my CPA to review and advise.  I also understand from my research that a GAO study found that 47% of this type of correspondence to taxpayers was incorrect and the IRS just collects and keeps the money.

2 comments:

Jim R said...

Sam, I don't think the IRS ever publishes the full rules about how they pick audits. So I don't think you'd find anything official that says they scrutinize people in years after an audit. But accounts figure out how things work and I found at least one site saying that the IRS does do that.

ref : http://money.cnn.com/galleries/2012/pf/taxes/1203/gallery.audit-red-flags/7.html

Sam said...

Thanks Jim R. for the link to the CNNMoney.com article. I've updated my post to include same. I almost feel better thinking that we are getting extra scrutiny for the last few years and that we are not just coming up via their audit software (meaning that we are not making mistakes year after year).