One of the first questions many of my clients ask is “why did I get audited?” The recent scandal surrounding the IRS and conservative groups has not helped diminish the feeling clients have that they have been unfairly singled-out. The IRS has spent considerable time, money, and energy crafting the persona as the one agency you do not cross, and when you find yourself sitting across the desk from an auditor you cannot help but feel the weight of the IRS on your shoulders. I have heard IRS officials discuss how they followed events in the newspaper to determine if a taxpayer’s return should be picked up for review. But that practice, if ever done, is so last century. Today the IRS has the internet and powerful computer programs to assist in determining if your return should be selected for an audit.
There is not much known about the breadth of the IRS’ computer tracking program. Much like the fabled DIF score, the IRS keeps their trade secrets very secret. Perhaps the NSA could learn a few secret-keeping tips from the IRS. The DIF score for all general intents and purposes was the IRS’ way of comparing your income and deductions to other similarly situated individuals. When you complete your annual tax return, the IRS has a simple question under the signature line that asks, “occupation?” Similarly, if you are a Schedule C filer, your business code places you in a comparison to other taxpayers in your profession.
What is known about this new process is that the IRS can cull large amounts of data from internet usage to help it perform statistical modeling of people’s behavior. This modeling is said to help the IRS target taxpayers more successfully for audits. These audits mean potential for more income, as there is believed to be a $300 billion shortfall in taxes due to tax errors and evasion.
This information gathering does not mean those without Facebook and Instagram accounts are safe from the reach of the IRS. The IRS will use this information to group us all into categories. These categories will be based determine whether they believe we are of the kind to potentially under-report our income to them.
So, if the IRS sends you a letter requesting your appearance at an audit, know that they have already done their research on you. Should you desire tax council, please contact my firm, but preferably not via a Verizon cell phone.