Search Audit Optimization

For anyone who gets a headache thinking about the latest in Search Engine Optimization, I've got news of a migraine headed your way.  While the odds of being audited remain low, the IRS is working diligently to better identify audit targets who are likely to produce unpaid taxes. We’ve already discussed the study being done on payroll taxes and how that adds thousands of tax compliant businesses to the pool of people who will get audited.  The IRS has determined that small businesses (less than $250,000 in assets) are filled with non-compliant tax payers, so they’re launching a new random study to find areas where this alleged non-compliance occurs more often.  This adds another 2,500 companies into this year’s pool.  Results from all these studies are destined to fall into the IRS version of the Google algorithm, presumably generating more yield per auditor.

While I’m being snarky in my comments here, the fact is the IRS auditors are getting more productive.  According to my Kiplinger letter subscription, Treasury inspectors say their average tax deficiency per exam is up 58% in the past five years.  However, they acknowledge that in fact the increase is mostly driven by whistle blowers.  (The past 5 years have been tough on employer / employee relations.)  About a third of companies selected for audit get through without paying a penny.  However, before you get too happy about that, (also from Kiplinger) the number of penalties assessed and their size is growing.  In the same 5 years accuracy penalties assessed to individuals went up 800% and businesses saw that number triple.  (Yes, that could be a reason why you need a good accountant.)

As if all this isn’t enough, the IRS is asking Congress to expand its power to levy  as a way of getting money it believes is owed.  Part of the argument is that taxpayers can effectively slow the collection process under the current procedures, and in 93% of cases studied by the IRS, the levy was warranted.  First of all that’s just one sample -- and as we know from mortgage backed securities, how the sample is picked really matters.  Also getting back to those accuracy penalties assessed on individuals – 25% of the $1 billion assessed in 2010 was later reversed by the IRS.  Oops.