‘IRS’s most wanted’: Middle-class earners remain the most targeted group for audits, says WSJ report — 4 ways to prepare if an auditor comes knocking
If you thought President Joe Biden’s mandate that the Internal Revenue Service audit more ultra wealthy and fewer middle-class filers is in full swing, guess again.
In fact, 63% of new audits as of Summer 2023 targeted taxpayers with income of less than $200,000, according to figures compiled by The Wall Street Journal’s editorial board, which then dubbed the $200,000 man the “IRS’s most wanted.”
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So be warned middle-class readers: This could impact you as the $200,000 filer very much remains in the agency’s crosshairs.
But what to do if you’re audited? First and foremost: Don’t panic. We’ve identified four things to expect in the event IRS agents want to scrutinize your 2024 return.
Government report confirms reform snafu
The agency’s laggard performance was documented in March in a 43-page report by the U.S. Treasury Inspector General for Tax Administration (TIGTA). As of last year, the IRS had a strategic operating plan to overhaul its auditing structure and “deliver transformational change for taxpayers.” But of the 58 milestones set for Fiscal Year 2023, “IRS management identified that [it] completed 19,” or just 33%. Nor does it know how or when it will finish.
Imagine that: paying a third of your taxes late and giving the taxman no idea when you’ll fork over the rest. But though the IRS is way behind on its checklist in a way it wouldn’t tolerate among late tax filers, its audits are right on schedule. Call it efficiency in action, even if it is the wrong kind.
A deeper dig (you know, the kind auditors like) adds context to the picture. The Transactional Records Access Clearinghouse, a non-partisan data research center out of Syracuse University, reports that those making up to $200,000 annually were the most audited by IRS (67%).
Meanwhile, IRS numbers for pursuing the ultra wealthy look abysmal. The TIGTA report confirms that “the first wave of revenue agents and specialists for large corporations, large partnerships, high-income and high wealth individuals … have yet to be hired and onboarded.”
If the IRS agents currently on staff point the finger at you, here’s what to do.
Audit prep step one: Know your audit
Many panicked taxpayers think of audits as part of one big pile, when in fact they’re on three different levels of scrutiny. The mail audit is the simplest. In this case, routine errors from incorrect math or missing paperwork are resolved via letters and may address something as basic as an accidentally unreported 1099 form.
Though the office examination audit may sound grave, it just means you’ll need to schedule a meeting at a local IRS branch. They’ll want to find out whether you reported all of your income and take a closer look at your deductions to make sure they’re justified. (Work clothing, for example, is not an allowable deduction in most cases.)
Finally, the field audit is worth filing under “be on your toes.” An IRS agent will visit your home, business or accountant’s office to examine records and files that confirm your tax return information is correct.
Does the IRS consider you a rogue because they’ve audited you? In many cases, that's as far from the truth as possible. Random selection and computer screening play a role in the process, as do related examinations where you've done business with someone else who was audited.
Read more: These 5 magic money moves will boost you up America's net worth ladder in 2024 — and you can complete each step within minutes. Here's how
Audit prep step two: Organize your paperwork
Even one missing receipt for a higher-ticket item can trip up your audit and result in taxes and penalties. Before the first IRS meeting or examination, gather all your paperwork and make sure it’s organized. If you discover any missing files, immediately chase down replacements. Debt.org lists the essentials as home mortgage statements; previous tax returns; receipts; brokerage statements; retirement account records; and pay stubs.
Audit prep step three: Contact your tax preparer
If you enlisted an accountant or tax preparation service to file your return, now’s the time to contact them. H&R Block, for example, provides tax audit support with in-person representation for those who’ve purchased its tax software.
And while an audit may seem like a stroke of very rotten luck, consider yourself fortunate if you have a long-standing relationship with a solid CPA. They’ll not only know the intricacies of the U.S. Tax Code — more than 6,800 pages not including official guidelines — but also your records past and present in much the same way a doctor would be familiar with your medical history.
Audit prep step four: Know your rights
Yes, taxpayers have rights. Two of the most important are the right to professional and courteous treatment by IRS employees and the right to appeal disagreements within the IRS and in court.
One more thing: Know the wrongs, too. If you’ve been contacted by phone, you haven’t been audited but instead hit up by scammers after your financial information. They’re very crafty, too, using phone numbers with the 202 area code of Washington, D.C. They may also coerce you to create a bogus tax payment account, as the IRS noted just in time for the April 2024 filing. So even if the IRS calls you into their office, keep in mind that they will never, ever call you by phone to break the news of an audit.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
