After Years of Lax Enforcement, IRS May Ramp Up Auditing Efforts in 2021Articles/News, Offshore Account Update
Posted on May 28, 2021 | Share
The IRS has conducted relatively few audits in recent years. In 2019, the IRS audited just 0.45 percent of individual tax returns, down from 0.59 percent in 2018—and even further down from 1.11 percent a decade prior. But, as New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, this may change in 2021.
Under a new proposal, the IRS will seek to reduce the “tax gap” (the difference between what U.S. taxpayers owe and what they pay) by $700 billion over the next 10 years. In order to do so, it will significantly increase the number of audits it conducts on an annual basis. While the IRS will likely focus its enhanced auditing efforts on certain classes of taxpayers (i.e. those with substantial income, those who work in the gig economy, and those who invest in cryptocurrency), no taxpayers will be immune from the risk of an audit.
So, as a U.S. taxpayer, what does this mean for you?
Mitigating Risk Before or During an IRS Audit
There are several steps U.S. taxpayers can (and generally should) take to mitigate their risk of facing interest, fines, and other consequences as the result of an IRS audit. Some examples of these steps include:
1. Timely Make All Required Filings
You know you need to file your annual income tax return, but do you have other filing obligations as well? Failure to timely make all required filings (including quarterly estimated tax filings and filings for offshore assets) is among the most common triggers for IRS audits.
2. Report All Income from All Sources
When filing your federal tax returns, you must generally report all income from all sources. If the IRS learns of your income from another source (i.e. a company that issued you a 1099 or your cryptocurrency exchange), this has a high likelihood of triggering an audit as well.
3. Determine Why You are Being Audited
If you are facing an IRS audit, one of the first questions you need to answer is, “Why?” While you must respond to the audit promptly, you must also be very careful to respond correctly. Attempting to defend against allegations that aren’t actually on the table could end up doing more harm than good.
4. Assess Your Reporting and Payment Obligations
As the target of an IRS audit, you should not rely on the agency’s determination of your tax liability. Instead, you should thoroughly assess your reporting and payment obligations—and you should arrive at your own conclusion about what (if anything) you owe.
5. Engage Tax Defense Counsel
If you are at risk of facing IRS penalties (or the possibility of criminal prosecution), you need to engage experienced tax defense counsel promptly. While there are a variety of ways to successfully defend against an IRS audit, defending yourself effectively requires experienced legal representation.
Request an Appointment with a New Jersey Tax Attorney at Thorn Law Group
Could you be at risk in an IRS audit? To discuss your situation with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 201-355-8202, email email@example.com or request a confidential consultation online today.