YOU’LL be happy to note that the IRS also gets audited. It’s audited by the Treasury Department to determine whether tax compliance officers conduct required filing checks in accordance with IRS policies and procedures.
In particular, the Treasury Inspector General for Tax Administration (TIGTA, an agency that oversees the IRS) instructed the IRS to expand audits to prior and subsequent years. While this was already a standard operating procedure, the new instruction reiterates that agents obey this instruction to get you for three years. If the IRS audits your income tax return for 2016, they must expand the audit to your 2015 and 2017 as well. Ouch!
TIGTA stated that IRS must make every effort to ensure that audits are expanded to prior year returns, as well as subsequent year returns, when “substantial” taxes may be involved.
TIGTA evaluated single-year audits of individual returns for which the taxpayers understated their tax liabilities by more than $4,400. Auditors scrutinized 100 of such sample cases. Although similar tax issues may have existed on prior and/or subsequent year returns, the audits were not expanded to those returns in 48 of the 100 sample cases. As a consequence, opportunities may have been missed to address the noncompliance that contributes to the tax gap and promote tax system fairness among the vast majority of taxpayers who properly report and pay their taxes year in and year out.
IRS has estimated that $197 billion of the $345 billion tax gap is attributable to individuals underreporting their income tax liabilities.
TIGTA identified two factors why the IRS may not have expanded audits:
1. The agency strives to keep its audit inventories free of old tax year returns.
2. Tax compliance officers do not take advantage of available internal sources of information.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].