At this time of the year the subject of taxes is high on the minds of some people. For the vast majority of people, it is a time of happy anticipation, any day soon a nice refund check will be in the mail box. Most people have little to worry about, taxes are simple. The company you work for has extracted taxes during the year and filling out a 1040EZ can be done online in just a few minutes. It is way easier that signing up for Obamacare!
For some though it is a time of trepidation. A few think that the IRS can be ‘gamed’, alas in this day and age that is akin to believing that you can outwit the NSA on your cell phone or computer!
I asked retired IRS agent Wayne Vinson about Audits. He started with a rebuke:
I was an IRS tax collector, not an IRS auditor. The jobs are totally different—different tasks, different authority. The collectors are revenue officers and the auditors are revenue agents. But, working in small offices where there are both collectors and auditors, I did get somewhat educated as to what the other guy does.
I hasten to assure you that no harm is done if you have referred to me as “IRS agent Wayne Vinson.” In the eyes of the public, I was an IRS agent.
I sat in the corner on my dunces chair. I know when I am beaten. He continued:
Okay. What is a tax audit? A tax audit is an effort by IRS to determine whether you have filed a correct tax return—or not.
It entails digging out your receipts or other evidence to show that you filed a correct return—or not. The auditor may ask you for proof of deductions, or proof of business expenses, or proof that you can legitimately claim the number of people claimed as exemptions on your return. If you report a low income but are living high, the auditor may have questions about that.
This all made perfect sense, if the taxpayer was earning $7.25 an hour working at McDonalds but owned a huge house and a flashy car I would be skeptical as to the truthfulness. Of course keeping receipts and other proof for a claim is a good idea. But is there a point when it becomes impractical? Twenty years ago I bought a computer, the invoice has long since disappeared. Wayne says:
IRS can audit returns that have been filed less than three years. After three years, tax returns are closed and cannot be audited.
Wayne had skirted the issue. What sparks an audit? I pressed on, his answer was most illuminating:
High itemized deductions on a return.
A high income offset by a large operating loss from what looks like a hobby—say a doctor reports $220,000 income from a medical practice and a $100,000 loss from his horse farm.
Huge companies are routinely audited.
Any protest evidence on a tax return.
A referral from collection division that a certain taxpayer should have filed but did not and will not.
This reply has given me food for thought. I love to ‘tinker’ in the kitchen and on occasions things get broken. I tinker for scientific reasons and publish the results online. But now I see that claiming broken pots and pans as a deduction might be a bad move!
Wayne Vinson was an IRS agent for 33 years and the author of a real thriller, Tax Collectors and Other Sinners, the story of a psycho killing tax collectors. It is available at amazon.com as an E-book or soft cover.