IRS started a National Research Program for Individuals in 2007 These Audits are more commonly known as one of the most difficult audits from examining every line item to every deposit.
A History Note from the IRS shows that the 2001 NRP Audits examined 46,000 individual tax returns. Only 2600 (less than 6 percent) of those examinations produced a “No Change.” A No Change means the Taxpayer did not owe one additional dollar of tax. Therefore, they equally did not pay any penalties or interest.
We are proud to say that we recently represented a Taxpayer for this 2007 IRS NRP Audit Program and they received a “No Change!” We are also proud to say that we have a “100 percent No Change” for other areas.
Does tax preparation by individuals not using a professional increase audits? We do know that the IRS examined 1.3 million individual income tax returns in FY 2006, more than double the number examined in FY 2000.
The results of studies such as the NRP above help the IRS and the Government understand the Tax Gap. What is the Tax Gap? The Tax Gap is defined as the aggregate amount of true tax liability imposed by law for a given tax year that is not paid voluntarily and timely. Generally the Tax Gap is comprised of three components.
1. Underreporting of tax liabilities on tax returns
2. Underpayment of taxes due from filed returns
3. No filing of returns.
The largest component of the tax gap is attributed to unreported and underreported income, rather than the overstating of deductions.
There are 16 legislative proposals on tax gap reduction, seven relate to expanded information reporting, such as payments to Corporations.
We stay in touch with these issues, so you don’t have to worry about them.
For more information, please call 661-253-3771.