Will The IRS Forget My Unpaid Taxes?

Most of us are tempted to save money. We work very hard to earn it and we don?t want to give it away to the government, no matter how much they claim they use it for our benefit. We never see any receipts from the government where your taxes went. All we know is that we pay thousands of dollars and still have to pay for our social benefits. No wonder, most of us are opposed to paying the taxes. Even people who claim to be socialists (a few good friends of mine) don?t just voluntarily elect not to claim tax deductions. We are tempted to avoid paying taxes.

Then, when we are in trouble with the IRS, we still don?t want to pay a professional to help us. We still rely on our own expertise (that got us in trouble in the first place). Smart? Hm?

So, how does the IRS find out that you didn?t pay enough tax?

Most commonly, taxpayers receive CP 2000 for incorrect income. It means information returns were matched and inconsistencies were found. Also, the IRS scans tax returns for unusual amounts, unusual deductions, etc. For example, it is unusual for a dentist to entertain their clients. So, such expense as entertainment in the dental industry would be considered unusual.

You should always keep receipts to show proof to the IRS, in case they ask. You should always consult with a tax pro or an accountant what is deductible and what is taxable. Some transactions don?t make much sense to taxpayers if they don?t have accounting and tax knowledge. It is easy to make an error. For example, some taxpayers think that it is Okay to put an asset on the Balance Sheet at the fair market value that is much higher than its cost value. If a taxpayer does this, they will claim an incorrect depreciation amount (expense), in some cases, significantly higher than what they are supposed to claim.

My advice is to file tax returns every year. The IRS can?t go back and audit a tax return 3 years after it is filed or 2 years after tax due was paid ? whichever is later (fraud has no statute of limitations).

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