Learned much more than I wanted to know back in my younger days! Hope I never see a refresher.Yeah, I'm really glad I don't have first hand knowledge about a lot of this stuff
Learned much more than I wanted to know back in my younger days! Hope I never see a refresher.Yeah, I'm really glad I don't have first hand knowledge about a lot of this stuff
Yes.Are y'all actually interested enough for me to explain this stuff? It could get really lengthy.
yepAre y'all actually interested enough for me to explain this stuff? It could get really lengthy.
If this does not instill fear into you…
Good advice for dealing with anyone from the government... Be polite and give the appearance of cooperating. Defend yourself later.he likely told some IRS agent he wasn’t going to pay what they said he owed.
Words matter. Be careful what you say to an IRS agent. If they decide what you said is “willful disregard of the law,” they can screw up your life pretty bad.
Things to never say:
Go eff yourself.
It will be a cold day in hell before I pay that.
How bout I punch you in the mouth instead.
IRS CID hasn't accepted a referral for the crime of "Willful Failure to Pay" in, basically, forever. Maybe it happens once a decade but I'd bet against it. That's so bush league they don't bother.It’s my understanding that CID (criminal investigation division) only gets involved in situations of “willful disregard of the law.”
What are situations they get involved in?IRS CID hasn't accepted a referral for the crime of "Willful Failure to Pay" in, basically, forever. Maybe it happens once a decade but I'd bet against it. That's so bush league they don't bother.
Criminal tax fraud exceeding the minimum dollar threshold established in the current Law Enforcement Manual. LEM criteria has been as low as $5000 in decades past. I sincerely doubt it's still that low.What are situations they get involved in?
Thanks!OK. I'm very busy this morning but I'll sit down and do some typing this afternoon.
If this does not instill fear into you…
OK. I'm very busy this morning but I'll sit down and do some typing this afternoon.
If this does not instill fear into you…
I'm not so sure. The question revolved around how returns get selected for audit and the role automation will play in the future.Thanks, should make for some good reading.
I'm not so sure. The question revolved around how returns get selected for audit and the role automation will play in the future.
So, let's start with the basics and some history.
For decades, as long as tax return information has been kept on computers of any sort, the normal way returns have been selected for audit is via the differential function score (DIFF) of the return. For every type of taxpayer and every general sort of situation, there's a statistical average of the way the returns look, of the entries on every line. Those statistical models are updated all the time by an entire function dedicated to the task, the Statistics of Income office (SOI). There are far more ways that SOI compiles data than just averaging tax return entries but that's getting into the weeds.
In sum, every time a new return is filed, it's automatically scored and the more the DIFF score deviates from average, the more likely for the return to be selected for a potential audit.
That's the normal way. There are probably a thousand things beyond just a basic statistical model that can increase your DIFF score. If your
previous year return needed an audit, if you're taking deductions known to have high potential for abuse, if you're using types of credits that are commonly abused, if you used a bad preparer, etc. (Your return can also be manually pulled for audit for lots of reasons but that's beyond the scope of this post which will be, no matter how hard I try, much longer than anyone wants to read.)
AI advances make DIFF scores more and more useful, more and more accurate. That's great. Your high DIFF score gets your return sent out to some group of humans in an office near you. There are always far, far more returns sent out for audit than can ever be audited. When the paper returns arrive at an office, an experienced Revenue Agent or a Tax Compliance Officer group manager will look them over. The vast majority get a "There's not enough here to be worth the trouble" determination so they get boxed up and returned to files. (There's a whole process for that but that's getting a bit far afield.)
The returns that a human thinks are worth working are then assigned and the audit starts. They have priorities assigned to them and low priority cases, even after assignment, might not be audited if workload is too high. Those go back to files in dribs and drabs all year.
It's important to understand that there are different levels of audit.
If you get a basic notice that says you made a math error, technically that's an audit. But almost nobody contests those because, well, it was just a math error. You pay it and go ahead on.
Very simple returns can go through a correspondence audit where you get a letter saying "We need more information to allow this to process..." and you provide the information. Those notices will also say something to the effect of "If you agree with our suspicions and don't want to bother with this, pay this much." But the presumption is that you'll reply, somehow. Often, it was just a missing form or something that's easy to resolve. If you fight a corr audit because it's enough money and you think the IRS is wrong, you can go back and forth through the mail for a while but if no agreement is reached it will go out to the field offices and a human will work the audit.
Notice that in this historical landscape, the conflict always winds up with you talking to a human being if you don't agree with the computer notices you've gotten.
I think things should stay that way.
What I fear is that the new reporting requirements will result in much more authoritative corr audits where the case is not sent to the field but, instead, the agency will have so much faith in their algorithms that they will issue a final report and tell you to take it up with the tax court.
Now, docketing tax court isn't hard. The court bends over backwards to accommodate anyone who wants to fight the IRS. You can write your first filing with the court in crayon on toilet paper and they'll put you on the docket. When you go on to the docket, the Appeals Division automatically gets a case and tries to resolve it before the case must go to court. However, time is short. You and the IRS must reach an agreement before it gets to court which is 90 days after the date of the imaginatively named 90-Day Letter containing your final report.
That's not much.
Automation has the potential to compress all these time frames and force people to fix things quickly. That's not bad, specifically, but we all know what happens when you rush a bureaucracy; people get run over.
The question in my mind is "Do we want more audits?" The obvious answer is yes, of course, because the law should be obeyed. But is that really the case? The economy and the government function with a certain amount of fudge factor built into the tax enforcement process. We narrow that factor and we'll be creating unintended consequences I can't even begin to list.
We'll never hit the ultimate in tax enforcement where when you file a fraudulent tax return on April 15 a computer catches it and on April 16 a group of Revenue Officers shows up and starts towing away your cars.
And we shouldn't want that. We might want to be a little closer to that but no one who understands the first thing about human nature wants to achieve such a thing. The voluntary compliance upon which the entire tax system relies would crumble.
So maybe AI will make it possible for more tax cheats to get caught and be forced to pay more for more and more minor transgressions, all trucking along at the speed of technological advancement.
When does that progress so far that it triggers a society-wide rejection of the entire idea of voluntary compliance?
If we hit that point, we're all well and truly screwed.
that 51% of federal revenue comes from individual and small business tax returns and 73% of that from individuals and less than 50% of taxpaying citizens actually pay income tax after credits and deductions means we’ve hit that point already.…If we hit that point, we're all well and truly screwed.
That's a deep philosophical discussion that then needs to be translated into concrete figures. Both sides of that have always been above my pay grade....we’ve hit that point already.