Friday, August 5, 2011

Checks in the Mail

The IRS is modernizing.

The IRS has learned from the private sector how to leverage their resources and get the best bang for their buck. They have invested heavily in technology and information systems that enable the agency to conduct much business through the mail and avoid costly face time with auditors. This also allows them to reach out and resolve far more issues than they were previously capable of.

Example: During 2001 IRS mailed out about 30 million notices to taxpayers regarding potential discrepancies on tax returns. During 2009, it was 201 million. That is an increase of over 670 percent, and 2011 is expected to exceed that number. They have determined that the average return on a mailed notice nets them $1,670, and it is all automated.

They are now conducting more audits by mail. Of all the audits conducted in 2010, 78% were done via US mail, with an average return of $6,600 to the Treasury.

This means that you are more likely now to have errors or omissions caught, and it may be harder to resolve them since it can be a slow and sometimes frustrating process to communicate via mail. There are, however, two things you can do to protect yourself and minimize any exposure to imperial entanglements:

First, be diligent to report all your income and be sure you match up all the 1099 forms you receive to the income you disclose on your tax return.

Second, if you do receive any correspondence from IRS, DO NOT IGNORE IT! Pretending that they will go away, or waiting for the friendly reminder will only cost you a lot more money. A timely and complete response (or payment) will put to bed a problem in its infancy that can quickly ramp up with penalties and interest.