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  • Writer's pictureTerri Johnson, CPA

The Poor Get Audited Too

It's generally accepted that wealthy taxpayers have more complex tax situations and their tax preparation fees are much higher than the average citizen because they need a more highly trained and experienced preparer to understand and apply the tax code. It's usually easier and cheaper to prepare the tax return of a lower-income taxpayer. And these returns are often self-prepared or prepared by uncredentialed preparers.

The flip side holds true for the IRS. Just as it's easier and cheaper to prepare a less complex return, it's also easier and cheaper to audit these returns. And there are plenty of opportunities for taxpayer and/or preparer error on these returns. Seemingly simple returns can have hidden complexities when Earned Income Tax Credits, education credits, small business & rental income, and complex family situations come into play.

The IRS knows that errors and fraud run rampant in these situations and they can hire new (and cheaper) staff to audit these. These audits can often be done via mail, which cuts down on the auditing costs even more. It takes years to train an IRS auditor to be able to review more complex returns, and turnover with senior-level staff is high. Like any business, the IRS has to decide how to use limited resources to get the most bang for their buck. And they've been working on a shoe-string budget for decades. Does anyone remember the computer crashes during tax season a couple of years ago? And the fact that their computers were hacked and taxpayer identity information compromised? All of these are because of a lack of funding. And that won't change anytime soon, now that government funds are being allocated to COVID-19 mitigation and relief efforts.

So, it isn't fair, but it is a fact of life. The poor will continue to be audited as much as the rich. And the IRS will continue to find errors on those returns because of a complex tax system. Before filing your return in 2021, find a professional that you can trust and that has the education, experience, and credentials necessary to handle your particular situation. And feel free to ask questions before signing your return. You have every right to know and understand what you're signing and reporting to the IRS.

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