Report: IRS needs to increase prior- and subsequent-year tax return audits

According to a report by the Treasury Inspector General for Tax Administration (TIGTA), The Internal Revenue Service (IRS) needs to develop and implement more ways to determine which tax returns should be audited. The report recommends that the tax-collecting agency audit more of the prior- and subsequent-year tax returns of questionable income tax filers.

Currently, the IRS relies heavily on the correspondence audit process to address individuals suspected of underreporting their income. This process typically begins with the IRS mailing a form letter to a taxpayer identifying one or more questionable items on the tax return and requests for supporting information to resolve the issue. Once returned, IRS examiners review the information. If the questions are sufficiently answered, the audit is closed. If not, more information is requested, or the taxpayer is given an additional charge.

The IRS uses correspondence audits because they are more economical and bring in a sufficient amount of revenue for the cost. According to the TIGTA report, however, the IRS may be missing out on catching many of those who have underreported their income by not following up the following year to see if they paid the additional tax that they owed. The report also recommends reviewing tax returns from previous years to determine if the taxpayer has a habit of non-compliance.

The TIGTA report highlights what tax attorneys across the country already know, the IRS’s use of technology and use of tax audits is increasing. If you have been contacted by the IRS or any tax agency regarding your tax returns, it is important that you seek the legal counsel of an experienced tax attorney. The professionals at Moskowitz LLP are available to assist in all tax-related matters.

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