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Understanding the risk of audits

In Maryland, some taxpayers are audited every year. While some people may believe that they do not need to worry about being audited, it is important for them to realize that the Internal Revenue Service can audit anyone that it chooses.

Some people believe that the IRS only audits wealthy taxpayers. While it is true that the IRS tends to focus on people who earn seven-figure incomes because they might be able to recover more money from them, the IRS also targets low-income workers who make less than $25,000 per year and who claim the earned-income tax credit. People who fell in this tax bracket and who claimed the EIC were twice as likely to be audited as others.

Other people mistakenly believe that they do not need to report cash income that they receive. The IRS requires that people report all of their income, including income that is paid in cash. If the IRS suspects that people have received payments in cash, it can use sophisticated analytical techniques to find the unreported income. The agency may look at bank accounts and expenditures in order to determine if someone has failed to report cash income.

People who have been notified that they have been selected for audits might want to talk to experienced tax law attorneys as soon as possible. Tax attorneys may defend their clients against audits. They may succeed in proving that their clients do not owe any tax liabilities. If their clients have filed incorrect tax returns, the lawyers may file corrections and work to negotiate settlements with the IRS on behalf of their clients. The lawyers may secure agreements for payment plans, tax settlements and a reduction of tax penalties. In some cases, they may succeed in having their clients' tax debts declared to be currently uncollectible.

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