Tax Audits Go More Smoothly For The Rich

Here's another way the rich are different: If they get audited by the IRS, they have a much better chance of dealing with an actual person.

According to Nina Olson -- a taxpayer advocate recently profiled at length in Bloomberg Businessweek -- the Internal Revenue Service has two ways of conducting its audits. One involves computers, and one involves real live human beings.

Increasingly, says Olson, what kind of treatment you get depends on how much money you earn. “We’re getting to a situation where the only people who will get face-to-face audits are the 1 Percent,” Olson is quoted as saying in Businessweek.

WIth the deadline for tax season approaching, Olson's work with the Taxpayer Advocate Service -- an internal division of the IRS that helps guide taxpayers through the labyrinthine tax code, and sorts out disputes when they arise -- serves as a reminder that for many Americans, paying taxes can be a highly impersonal experience.

Humans don't necessarily have to be involved for the audit process to get underway. Rather, audits often begin with a computer throwing up an automated red flag, according to USA Today. If a particular tax return appears to vary in a big way from others in the same income bracket or ZIP code -- if, for example, the computer notices a category, like charitable contributions, that's conspicuously different from the average -- that can mean an audit for the outlying taxpayer.

In a situation like that, the taxpayer usually hears about the audit by mail or by phone, which means things may not go smoothly. A full 27 percent of people who receive audit notices by mail can't tell from the letter that they're being audited, according to Businessweek. And 10 percent of all the mail the IRS sends out doesn't reach the right person.

The IRS's automated audit process is far from error-free. In 2010, the agency flagged some 300,000 returns for including mistakes about dependent children, according to CNN. In more than half those cases, the IRS ended up letting the returns stand as they were.

Wealthy filers are more likely to get one-on-one attention, according to Olson. The 1 percent may not enjoy the scrutiny of the IRS -- and they've been getting more of it lately, with audits for millionaires taking a sharp jump in 2011 -- but the taxpayer gets certain rights during a personal audit that don't come along with an automated audit, according to CNN. Someone who gets audited by phone or letter has fewer options when dealing with the agency.

Comments

[No-name-plz]

11:32 AM on 04/25/2012

Somehow personal attention by an agent who holds all the power to seize/freeze your assets and charge you for an alleged crime doesn't sound like a perk.

[jmc35741]

07:42 PM on 04/17/2012

Another stupid HuffPo attack on the 1%.

[nothingchanges]

12:10 AM on 04/11/2012

The bad news?

The one percent, own this country. It's businesses, it's real estate, it's politicians, it's government, and it's courts.

The worse news?

That isn't enough. For the greedy nothing is ever enough, the more they have the more they want, and they will not be satisfied until they get it all.

The silver lining?

When the 1% own everything, they will be the only ones in America that can afford to PAY taxes.

To what ever is left of the Government, that is.

"Power tends to corrupt, and absolute power corrupts absolutely, great men are almost always bad men". -Lord Acton in his letter to Mandell Creighton 1887

[WTH 2012]

04:41 PM on 04/10/2012

"the only people who will get face-to-face audits are the 1 Percent"

And they think that's a GOOD thing?
An IRS agent in person means being forced to spend tens of thousands of dollars on attorney fees just to show the IRS where they were wrong.

[kultkonn98]

04:22 PM on 04/10/2012

"Tax Audits Go More Smoothly For The Rich"....doesn't everything?

[johnmarlin]

10:15 PM on 04/21/2012

Would having the tax returns of the wealthy being prepared by professionals who know what they are doing have anything to do with that?

[No-name-plz]

11:36 AM on 04/25/2012

I guess you have no choice then.... join them!

[DRaymond]

01:09 PM on 04/10/2012

I checked this article out with an enrolled agent (a tax pro approved to represent people during an audit) and it was a good source of humor.

First of all, being called in for a face-to-face is hardly a luxury.  Secondly the documents you send in response to an audit letter are reviewed by a real person, not a computer And people being brought in for a face-to-face audit are notified by mail just like mail-in audits.  Someone who would misinterpret a letter audit would be just as likely to misinterpret a letter for an in-person audit. (Which happens too, People are very skilled at denying an unpleasant fact.)

The main difference between whether someone gets a face-to-face audit or not is the complexity of the return.  If somebody earning a million only has a question regarding whether somebody is a dependent or failed to include a 1099 they are going to get a mail-in audit too.  Rich people are more likely to have complex tax returns of course, but this is hardly a privileged of the rich to have complex tax returns!

People who have mail-in audits have all the same rights to appeal the findings of the audit.

The biggest problem with mail-in audits is that the IRS has a tendency to lose the stuff that is sent in.  Even if you get a signed delivery receipt if the materials haven't made it to your file you are still going to get the response 'we don't have your response'.

So if you get a letter audit:

1.  Act fast.  The letter may say that you have 90 days but if your materials are lost you don't get an extension on the 90 days.  Moreover they give themselves 30 days for getting it from their door to their files.  So if you need the time to send it again in the 90 day limit you need to have it sent well within 30 days.

2.  Get help.  You remember how the tax preparation software had a promise for audit assistance?  USE IT!  Here is where there is an advantage of using a preparation software that also has places to go for face-to-face help.

3. Send copies. NEVER send in originals of documentation and ALWAYS send in a manner that gets you confirmation of delivery.

[Mister Grumpy]

10:57 AM on 04/10/2012

As with everything else, you only rate to get personalized service if you're a member of the elitist 1%'ers club.

[Sundialsvc4]

10:50 AM on 04/10/2012

With hundreds of millions of tax returns to process every year, how would YOU propose to do it?

Frankly, I would like to see the whole thing be simplified even further: in my opinion, the majority of taxpayers should have no need to file a return "perfunctorily," and basically would do so only if they have a not-ordinary tax situation or are entitled to a refund or both. Most people should have no refund at all, and no tax obligation beyond that already paid on their behalf by their employers.

Consider: if a company employs 150,000 people nationwide, and it pays taxes on behalf of all of them through payroll deductions (as it now does...) then the most efficient way to secure =sufficient= tax-income from 150,000 taxpayers is simply to ensure that the company who employs them is doing their payroll processing correctly.

It should almost never be the case that "audits" are required at all, because it should almost never be the case that there is anything on an individual basis to be audited. =Eliminate= Form 1040 and its brethren.

Accept that you're collecting, say, 85% of the theoretical-maximum tax income. Offset this by the fact that you've cut IRS's own overhead by 25%. Realize also that taxes are only a tiny part of a largely debt-fueled money stream anyhow. IMHO, it =is= both justifiable and worth doing.

[Hillbilly49]

10:12 AM on 04/10/2012

How much money is Swiss Mitts trying to hide in Switzerland, Hong Kong, Ireland and the Cayman Islands; inquiring minds want to know?

[Mister Grumpy]

10:59 AM on 04/10/2012

I seriously doubt even the IRS knows the answer to that question.

[Olderandwiser55]

07:36 PM on 04/10/2012

I imagine they are working on it :). Have a feeling we might know more this year.

[blackranger]

09:46 AM on 04/10/2012

Of course thing go more smoothly when you have your tax lawyer sitting in on the audit. If you are an ordinary person without money for an attorney, you are treated like dirt. Have been helping my friend with her tax problem with IRS, they have called her a liar and told the advocate in her senator's office that she is a liar. They took her bank account and refuse to accept her returns (which had not been filed) They claim it is her problem that she cannot produce her W-2 s from 1995 to 1997 even though apparently they do not have copies of those years themselves. Having taken her entire savings, (divorce settlement) they are now going after her home and will no doubt take that as well. They are claiming some 200,000 in tax liability and that is more than this person made in ten years.

[Chubbster]

09:09 AM on 04/10/2012

Tax audits go more smoothly for the rich because they are far less likely to cheat on their taxes.

[Aikaterina]

09:02 AM on 04/10/2012

Let's face it. The 1% can afford savvy-expensive tax attorneys, who'll find every-any loophole imaginable (to lower their taxes), as well as to represent them in an audit.

With the economy as it is, many being unemployed or under-employed, who can afford to pay a tax preparer? Many folks resort to filing out their own returns, in part because they don't have much to report. They use those "free" websites that are often riddled with inaccurate information.

[johnmarlin]

10:23 PM on 04/21/2012

Is there something wrong with using every legal means there is to minimize one's tax liability? Wealthy people don't write tax laws. They can only do their best to use them to their own advantage and what's wrong with that?

[Kaelyn]

08:12 AM on 04/10/2012

they get an in person response not out of "courtesy for the rich" but because their tax returns are often more complicated, and the amount the IRS is going after is usually significant. I'm an ex-IRS auditor. First contact on a potential issue is always going to be a letter. Getting a call from an agent means they smell "blood in the water", if they don't expect to clear X amount per day in an increase in tax owed, you won't see a human. Trust me, you don't make much working for the IRS, and every agent I've ever known has taken an almost perverse joy in stick it to some filthy rich SOB who thought vast amounts of money would shield him, and let him get away with shady accounting practices or outright cheating. I'd rather get a letter any day of the week, the last thing you want on your doorstep is and IRS agent out for blood.

[William W Scott Jr]

07:05 AM on 04/10/2012

Duh!!! Tell us something we don't already know.

[newsinuk]

05:43 AM on 04/10/2012

Tax Payer Advocate office is just the start of the nonesense. If anyone bothered to listen/watch senior IRS officals before Congress last week you can see what that body cares about. Posted by - http://www.newaustralianews.com/

[TheRealOldPro]

02:32 PM on 04/10/2012

I had an issue a year ago where my return was lost... and even though I resent it two more times I was still getting nowhere... until I contacted the Tax Payer Advocate office. They found all 3 returns at 3 different offices across the country. I got my return a few weeks later with interest. So I can say for a fact they do some good.