The Tax Blotter

The Tax Blotter is a round-up of recent tax news.

Audits rate at historically low levels, but that doesn’t mean you can let down your guard. Be vigilant about “audit-proofing” your return the best that you can.

More audits for wealthy? According to IRS statistics, the overall audit rate for individual taxpayers in 2019 was a microscopic .45%. For high-income taxpayers earning more than $1 million annually, the rate edged up to 2.4%. In comparison, it was as high as 8.36% in 2010. But the Biden administration wants to ratchet up audits this year, especially for the wealthiest taxpayers and large corporations. The president as asked for an extra $80 billion in funding. We will see how Congress responds.

Appeal to another authority. If the IRS auditor hangs you out to dry, do you have any legal recourse? You can appeal the outcome to the Office of Appeals. This is a separate office within the IRS that operates independently. Basically, you submit a written protest or statement outlining the issues in dispute and the reasons for your disagreement with the outcome. It may take slightly longer than a half a year for the office to resolve the matter. Note: The IRS may be willing to compromise, so try to remain flexible.

Study IRS Audit Technique Guides. You can learn plenty from the Audit Technique Guides (ATGs) that the IRS provides to its auditors. Typically, an ATG includes unique issues, business practices and terminology for a specific industry. Using this information, an IRS examiner can reconcile discrepancies with the usual standards. Update: The IRS periodically expands its library of ATGs. The latest one on the retail industry reveals how to to snuff our unreported income and inventory mistakes. View the entire list of ATGs at www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Audit-Techniques-Guides-ATGs.