ON A typical Tuesday during this tax season, I’ve had three new tax clients (who were previously with other preparers) – all of them have just recently been audited on two or three prior year tax returns. Due to the rigidity and stress that these tax audits brought to them, all of whom now don’t want to itemize deductions and simply wanted to file their 2011 income tax returns using the standard deduction. Looking at the returns audited, it makes strong sense why they were audited; there are simply too much itemized deductions, and in some cases, unwarranted, business losses claimed- the purpose of which is to decrease the taxable income.
Never had we seen an unprecedented number of audits from the IRS before!
For the last two years, the IRS has hired thousands (approximately 5,000) of new tax auditors and agents whose main responsibility is the enforcement of tax laws. While, at first, it doesn’t seem prudent for a government agency to hire too many new employees in the middle of recession, it ultimately boils down to getting more revenue for the government. More audits mean more collection and the IRS is purportedly aiming to collect $1.1 billion out of this initiative during the initial phase out alone.
Taxpayers should be proactive and ensure their returns are accurate and that expenses and claims can be substantiated. These new, young IRS employees are likely to be very aggressive and technologically savvy.
In an audit, the burden of proof relies on the taxpayer, not the tax preparer. The tax preparer could be penalized, to the extent of criminal prosecution, but the taxpayer is ultimately responsible for the content of his own tax return.
So much has been said about the already fragile middle class being the biggest prey of tax collection and audit efforts. Say, instance, multi-billionaire Warren Buffett admitting that he pays less in taxes than his secretary or have we heard the recent headliner about Presidential candidate Mitt Romney paying less than 15% in taxes?
The middle class are the main targets of these enhanced tax collection initiative. It’s the middle class who can’t hire high-profile professionals to defend themselves, who can’t afford to cleverly hide their financial affairs like the rich and the big companies. The middle class will have to ultimately pay for the gaping budget deficit.
The middle class is you and I….. and the more that we have to be careful and do our due diligence. Precautions start with maintaining organized books and records and having your tax return prepared by a reputable individual.
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Evangeline can be reached at her marketing location at the Ground Floor of Eagle Rock Plaza (in front of Jollibee), 2700 Colorado Blvd., Los Angeles, CA 90041 or at her business address at 450 N. Brand Blvd., Ste. 600, Glendale, CA 91203, phone number (323) 356-3803 or (323) 254-6787.
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