• 6550 Rock Spring Drive, Suite 530, Bethesda, MD 20817
  • 301-962-1700
  • mendoza@mendozaco.com

Blog - Tax Related

Items filtered by date: June 2021 - Mendoza & Company, Inc.

  President Biden is proposing to increase IRS funding by $80 billion over the next ten years to aid in collecting taxes from America’s wealthiest individuals and businesses. The proposal aims to increase audits for individuals earning $400,000 or more in order to “ensure that the wealthy are paying their fair share” of taxes. The goal with the increase in funding is to generate $700 billion in revenue by the end of the decade. On the outside, it sounds like a good way to help fund the trillion dollars being allocated toward the infrastructure project. But, how can we make sure that the average American won’t increase their chances of being audited?

  There is no debate that the IRS is severely underfunded, however. Even though counterintuitive, this can be a good thing from the perspective of our clients. From 2010 to 2020, the agency lost over 33,000 employees, with the number of millionaires nearly doubling during that same time period. With the increase in spending, the IRS will hire nearly 78,000 new employees over the next decade- with many delegated to tax enforcement and audit procedures. Although the goal of the agency is to decrease the levels of tax evasion among the wealthy Americans, there is no guarantee that the increase in spending will play out this way. The increase of new IRS employees will likely increase the cases of audits in Americans with an average income. With the additional employees, there will be an increase in audits overall, since new recruits have to gain experience in the audit field. In reality, the wealthier individuals and businesses have the resources for effective defense against audits, while the average citizen may not have the same resources to protect themselves from an audit- making the average American a likely target for upcoming audits. 

  It’s a common occurrence for the IRS to abuse their power and coerce individuals into paying more taxes than they owe. As a tax resolution firm, we see this very often. We often see audits where a client’s deductions are disputed, and the client ends up with a multi-thousand dollar bill. The occurrence of these scenarios don’t exclusively affect the ultra-wealthy. Individuals, and especially businesses, who do not have the means to have a bookkeeper or an accountant, face an increased chance of losing audits. In general, having proper documentation and representation to dispute audit allegations increases the likelihood of winning the audit. Hence why individuals and businesses with greater means are less likely to lose an audit. Newly hired IRS auditors, which will represent nearly half of IRS staff, likely won’t be handling these types of audits.  

  An increase in workers is going to increase the overall occurrence of audits- all around. Regardless of how much you or your business makes, you will have an increased chance of getting audited. So what should you do if you get a “notice of discrepancy” letter in the mail from the IRS? Don’t accept the proposal by simply paying the bill- no matter how small. If you are in compliance, provide the proper documentation, and dispute against the discrepancy. Otherwise, there will be a possibility of further investigations into previous years. That means more audits, and a larger bill. What might be a small proposal of discrepancy, can possibly grow into multiple years of audits. 

 Take for example our client, who had her business deductions dismissed by the IRS. In March 2019, she received the CP2000 letter claiming that she had a tax discrepancy of $11,000 from December 2016. With penalties and interest accumulating over the three years, the bill grew to $15,000. She is a classic example of the IRS chasing after regular Americans, not the ultra-wealthy. Our client only had a combined AGI of $90,000 with her husband. Her story is similar to what we see all the time: a new IRS agent conducted the audit, and misappropriated her rightful deductions, and now the taxpayer is faced with an inflated bill. After coming to us, we settled with the IRS and the agent conducting the audit, provided documentation, and eventually eliminated her proposed tax liability altogether. Not only did she win the audit, but she is also spared from any additional audits for previous years. With some help, she stopped the audit abuse at the hands of the IRS.

  With the increase in IRS spending, please make sure that you or your business are in compliance with the agency. If you own a business, it is important that your business finances are well organized in the event of an audit. We recommend hiring a bookkeeper or accountant to help keep your business in compliance and increase your chances of success in winning an audit, if one were to ever occur. If you find yourself with a CP2000 letter, or notice of discrepancy letter, do not hesitate to reach out to your local tax professional. No matter how small the amount, it is important that you understand your rights. 

Published in Tax Audits

About Us

Mendoza & Company, Inc. is a full-service accounting, Payroll, and Tax Resolution firm in Bethesda, MD and Miami, FL. As a client, you gain a professional team with expertise in multiple fields, providing you the right advice to strengthens your organization and long-term goals.

Mendoza & Company © All Rights Reserved 2019. Powered By mendozaco.com