Sequester's possible silver lining: fewer IRS audits

As we have noted in past posts, the prospect of an audit is not one that is looked upon with relish. At the same time, it's not something that most readers in the Maryland, Virginia and District of Columbia areas necessarily need to be too worried about.

Only a small percentage of all returns are audited in a typical year; typically about 1 percent. And this year, because of the automatic federal budget cuts that have started to be taken under sequestration, the Internal Revenue Services is expected to reduce the number of audits it performs for lack of resources.

According to the Transactional Records Access Clearinghouse, audit rates were already down more than five percent last year. With sequestration, that trend is predicted to continue. The experts say that the simple math is that with fewer bodies, there will be fewer audits.

The IRS confirmed in one recent statement that staffing from 2010 is already down by 7,000 employees. The agency says that staffing in enforcement roles are down by 6 percent compared to what they were a year ago. That's prompted some to predict that in addition to fewer audits, actual enforcement action will be reduced.

At the same time, despite the apparent improving odds, there are many observers who warn against thinking that suspected tax evasion will go completely unchecked. They say reduced staff may cut face-to-face audits, but that audits by other means may be stepped up. They also note that obvious discrepancies between returns and income documents are spotted more easily because of automated systems used by the IRS.

Many say delayed enforcement actions shouldn't be glossed over lightly, either. They point out that delays mean that interest on owed taxes will build and that could lead to steeper penalties than might be expected under normal IRS conditions.

One thing that is certain is that regardless of what is happening, the IRS will not be shuttering up the shop completely. Audits will continue. And if you happen to be faced with such a prospect, the wisest action possible is to be in touch with an experienced tax attorney.

Source: The Wall Street Journal, "Why you won't be audited this year," Jonnelle Marte, April 10, 2013

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