Sacramento is the capital of California, seat of government in Sacramento County, and a large and bustling metropolitan area. Greater Sacramento has a population of nearly 2.5 million and is the fourth largest metropolitan area in California. Sacramento was originally a city founded by Swiss immigrants, went through a period of Mexican rule, and the diverse nature of the city lives on to today. In 2002 Sacramento was named the nation’s most diverse city by the Civil Rights Project at Harvard University.
However, whether you are an individual taxpayer or a business owner, paying taxes is painful. Many people see the amount deducted from their weekly paycheck and wonder if there is any way they could hold on to more of what they earn. Business owners may feel frustrated complying with their payroll tax and sales tax duties in the face of a difficult business environment. In some circumstances a taxpayer may be tempted to engage in improper actions to reduce his or her tax liability. While it can be tempting to conceal income or overstate expenses, taxpayers should always resist this temptation. The IRS works strategically to identify taxpayers who evade taxes and then pursues aggressive enforcement actions against those taxpayers.
Why do Taxpayers Trigger an IRS Audit?
Taxpayers can face an audit for a number of reasons. Some of these reasons and factors are due to taxpayer characteristics or actions while others are wholly outside of the taxpayer’s control. For instance there is always the change that a taxpayer will be selected randomly to engage in a tax audit by an IRS computer. However, this is only one way a taxpayer can face an audit. Other acts by the taxpayer that can increase the odds of facing an inquiry from the IRS are:
- Taxpayers who make inaccurate filings – For some people, performing math of any type is an anathema. These individuals may be tempted to make their computations easier by rounding their income and other figures so that the math is easy to perform. Regardless of the rounding rules you may select for use, such an approach cannot be recommended because the IRS engages in information matching. If the information you provide the IRS lacks a corresponding document from your employer, the IRS can identify your actions.
- The taxpayer failed to include all sources of income – Taxpayers are required to report and pay taxes on all sources of income. This includes any income gained by W-2 employment, 1099 independent contractor income, and investment income & capital gains. Failure to include one or more sources of income is easily identifiable by the IRS and likely to trigger a tax audit.
- The taxpayer failed to file FBAR or FATCA – Taxpayers are also required to make yearly disclosures of offshore accounts through FBAR, FATCA, or both. While FATCA is filed with one’s annual taxes, FBAR requires a separate filing. FATCA disclosures by foreign banks and financial institutions are being used to identify and pursue noncompliant taxpayers.
Small business owners may face a heightened risk of audit because the IRS believes that compliance rates are lacking among small business owners due to the lower level of support and resources available in contrast to that of a major corporation. Other extremely successful individuals with significant yearly incomes also face a higher than average risk of audit. Consider that a taxpayer with income between $75,000 and $100,000 faces an audit risk of about .82 percent. A similar taxpayer making between $100,000 and $200,000 increases to more than 2.5%. If the taxpayer makes from $500,000 to $1 million, the audit risk nearly doubles to about 5.3%. However, after $5 million in reportable income audit rates skyrocket. From $5 million to $10 million the audit rate is 20.75%. Over $10 million in income, the audit rate reaches nearly 30%. One additional item of note is that taxpayers who claim no income are audited at a higher rate than all but those individuals making $500,000 or more.
Rely on Sacramento Tax Audit Attorney
If you have received a letter from the IRS requesting additional information or you are concerned about a past tax filing, the experienced tax audit lawyers of NewPoint Law Group can work to identify the problems and work to correct them. Our dedicated legal team is experienced in working with the IRS and advocating on behalf of a taxpayer. To schedule a no-cost, private tax audit consultation call us at 1-800-358-0305 or contact us online.