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ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – IRS AUDIT PERCENTAGE CONTINUES TO FALL – HOW WILL THIS IMPACT YOU?

By Robert S. Schriebman

2020

Introduction

Over the years clients have asked me what the odds are for being audited by the IRS if they undertake questionable activities, or take a risky position on their tax return. I’m not one of those Las Vegas odds makers and this question has always given me pause. I usually tell them it’s a good idea to feel safe today than be sorry tomorrow.

I recently attended the annual UCLA Tax Controversy Institute where Commissioner Rettig spoke candidly about the direction in which the IRS is navigating these days. It seems that the IRS’ emphasis is more on payroll tax compliance than it is on conducting audits of individual 1040 returns. The IRS is also pursuing virtual currency transactions and working with law enforcement world-wide to crack down on child pornography; and they have been successful! I applaud Commissioner Rettig for these efforts.

I have noticed a decline in the percentage of 1040 audits and the latest IRS press release has confirmed my observations.

The Decline In IRS Individual Audits

Perhaps it is due to a smaller work force. The IRS has been shrinking. The current fiscal year 2019 rate for audits has declined to 0.45% from 1.1% back in 2010. This decline may also be due to more taxpayers using dedicated software such as Turbo Tax or retaining competent and ethical return preparers, but one thing is clear, the 0.45% rate is the lowest in 40 years. WOW!

The odds of the IRS beefing up its audit workforce, does not look promising. A huge percentage of IRS employees will retire in the next five years; almost one-third!

How Does The Audit Decline Impact You?

I’m sure you can do the math, and see that an audit rate of 0.45% means a non-audit rate of 99.55%. The chance of getting away with questionable practices such as phony deductions or not disclosing taxable income is the highest in history. If however, you happen to win the audit lottery and get caught, there are severe penalties and daily compounding interest on back taxes and penalties too. In addition the FTB is waiting in the wings to do a “me-too” audit basing its assessment on IRS findings. IRS tax collectors are tough and aggressive.

Conclusion

Despite the historic low risk of audit, I personally do not see things any differently than I did when the risk of audit was a much higher percentage. Let me give you the same advice I gave to my clients in those days, that I believe is as valid today as it was then. The risk of audit is always going to be 100% should you register on the IRS radar.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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