low income and IRS audits

Low-income filers can’t be audited– FALSE

Being in the low-income bracket is hard enough, so it would make sense for audits to be less frequent, right? Actually, according to USA Today, taxpayers earning less than $25,000 a year have an audit rate of 0.69%. This means that low-income taxpayers are more likely to get audited than any other group, except those with incomes over $500,000 annually.

Why are low-income taxpayers targeted?

It’s not that low-income taxpayers are sought-after, but mistakes in returns are often found in smaller or larger tax brackets. The best thing you can do if you’re unsure is to seek help and resources with your taxes. Do not guess numbers or round up or down. It is crucial to give the exact number for every cost listed in your return.

There are other reasons as to why you would be audited that you should be wary of.  

Failing to report all of your income can also contribute to audit risk. Even if you’re solely relying on unemployment or Social Security, you have to report everything that you make when you file. Earning a low dollar amount does not equate to exemption from filing.

Home office deductions are often red flags as well. The IRS is sure to investigate the legitimacy of your deductions, so be sure to give exact expense amounts. Round, even numbers are certain to draw attention.

The IRS is also consistently checking for fraud related to Earned Income Tax Credit. If you utilize EITC, as much as it may be in your best interest to do so, it puts you at risk for being audited. Make sure you file correctly and only for the programs that you need.

If the IRS or state is claiming that you owe

After being subjected to an audit, you may find that you now owe the IRS in back taxes. This is a common occurrence when people misfile or fail to document all of their income. If this is the case for you, you need to deal with your liability as soon as possible to avoid penalties.

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Any new or systemic Liens and/or Levies will also be suspended for the time being.

For taxpayers who are considered “seriously delinquent”, the IRS will suspend any new certifications for the remaining period. Any taxpayer who falls into this category in reminded and encouraged to enter into an Installment Agreement or apply for an Offer In Compromise.

The IRS will not forward any new delinquent accounts to private collection agencies at this time.

Taxpayers have until July 15, 2020 to verify to the IRS they are qualify for the Earned Income Tax Credit or to confirm their income. If the taxpayer is unable to verify their credentials or provide appropriate documents for this credit, they are encouraged to notify the IRS before the deadline. No cases will be denied this credit for failure to provide requested information until July 15.

Case workers will continue business as usual. However, most case work will be conducted remotely (video/over the phone conferences). Any requests for documentation sent by the Office of Appeals should be responded to in a timely manner to ensure a smooth process.

The IRS will continue to take the appropriate measures to stay compliant and protect the applicable statutes of limitations. In situations where certain statutes may be compromised, taxpayers are encouraged to extend such statutes. Otherwise, Notices of Deficiency will be issued by the IRS and similar actions will be pursued to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.

Practitioners are reminded that PPS wait times may be significantly longer, depending on staffing levels and allocations going forward. The IRS will continue to monitor this as situations develop.

“The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others,” Rettig said. “We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.”

Learn how easy it is to qualify for tax savings.

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