Part V: Audit Problems (Problems 14-20)

One of the most stressful aspects of dealing with the IRS is the tax audit.

One of the many polls and surveys conducted by a national news bureau showed that the overwhelming majority of adults would rather undergo a root canal than endure a tax audit. In the IRS's own surveys of citizens, it found that one of the top ten problems people have with the IRS is "fear of audits and documentation needed." These results are not surprising, given the fact that the average face-to-face audit nets the IRS over $4,200 in additional tax and penalties. After adding interest, the bill doubles.

The bad news is that the IRS's audit results are wrong a good share of the time. Historically, I have claimed those results are wrong up to 50 percent of the time. However, General Accounting Office (now the Government Accountability Office) studies of the IRS's audit and appeals data show the results are wrong as much as 60 to 90 percent of the time, depending upon the issue. In my testimony to the Senate Finance Committee during its hearings on IRS abuse, I documented nine specific ways tax auditors take unfair advantage of people to get more money than they owe. In short, auditors use bluff and intimidation, misinformation and disinformation and in many cases, they simply lie to achieve increased tax assessments.

Unfortunately, the vast majority of those who undergo audits end up paying all or part of these improper assessments because they do not understand how to appeal the results or do not understand they have the right to appeal. This confusion leads to greatly escalated costs and enforcement hassles, both for the IRS and citizens. Indeed, according to the Taxpayer Advocate's Annual Report to Congress, often ranks improper audit results as number as the number one reason people seek help from the TA.

Face it: audits and auditors are intimidating by design. But audits do not have to be costly--if you understand your rights.

Problem 14 Missing receipts to prove deductions
Problem 15 The IRS claims I earned income I did not report
Problem 16 The IRS said my business was really a hobby -- Disallowed business expense deduction
Problem 17 The IRS's audit results are wrong but the auditor demands I sign the report and pay
Problem 18 I went through appeals but the IRS still says I owe
Problem 19 I did not realize I could appeal an audit decision or believed it was too expensive
Problem 20 I already paid taxes I do not owe because I did not understand my appeal rights

​These books were mentioned in the above problems: