{"id":3697,"date":"2023-10-20T13:56:25","date_gmt":"2023-10-20T13:56:25","guid":{"rendered":"https:\/\/infundpros.com\/finance\/the-irs-is-auditing-the-rich-can-you-fly-under-the-radar-if-youre-not-wealthy\/"},"modified":"2023-10-20T13:56:26","modified_gmt":"2023-10-20T13:56:26","slug":"the-irs-is-auditing-the-rich-can-you-fly-under-the-radar-if-youre-not-wealthy","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=3697","title":{"rendered":"The IRS is auditing the rich. Can you fly under the radar if you\u2019re not wealthy?"},"content":{"rendered":"
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\n \u201c<\/span> Making a distinction between tax avoidance (which is legal) and tax evasion (illegal). \u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n

In September, the IRS announced that it intends to shift its focus from less-wealthy taxpayers to high-income earners. Audit rates will not increase for those earning less than $400,000 a year.<\/p>\n

The announcement to hold \u201cour wealthiest filers accountable to pay the full amount of what they owe\u201d might leave some of us asking a delicate question:\u00a0Does this mean I can fudge a bit on my taxes?<\/p>\n

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Surely you\u2019re a law-abiding citizen who\u2019d never try to cut corners on your taxes. But let\u2019s just say you\u2019re intrigued that the IRS is increasing its scrutiny of other folks (attention is shifting to partnerships, corporations and promoters who are abusing tax laws as well as the wealthy).<\/p>\n

If you\u2019re more than intrigued \u2014 and weighing whether to fudge, fib or downright lie on your federal tax return \u2014 consider the context of the IRS announcement.<\/p>\n

\u201cThe IRS is not saying it will look away from tax evasion if you are a less-wealthy taxpayer,\u201d said Kassi Fetters, a certified financial planner in Anchorage, Alaska. \u201cWhat the IRS is saying is that with new funding from the Inflation Reduction Act, it will restore the decade-long drop in audits for wealthy taxpayers.\u201d<\/p>\n

While the IRS news doesn\u2019t mean you\u2019re free to cheat on your taxes, it does underscore the distinction between tax avoidance (which is legal) and tax evasion (illegal).<\/p>\n

\u201cWhen we talk about tax avoidance, we\u2019re talking about permissible tax-return positions based upon legal gray areas,\u201d said Colin Walsh, a principal at Baker Tilly, a Chicago-based tax and consulting firm. \u201cFrequently as a tax attorney or CPA, we encounter situations where we\u2019re reporting something on a tax return and the law doesn\u2019t really give us a precise answer.\u201d<\/p>\n

By contrast, knowingly making a false statement on your tax return crosses the line. Examples of illegality include taking a deduction for which you clearly do not qualify or substantially underreporting your income by hiding a chunk of your earnings.<\/p>\n

When her clients explore tax avoidance moves, Fetters responds by asking, \u201cIn an audit, do you think you\u2019d win?\u201d She adds that most taxpayers are not trying to commit fraud. They simply want to know if it\u2019s okay to claim a specific deduction.<\/p>\n

A common scenario involves rental properties. For example, a property owners buys a lawn mower for a rental property that is also used as a main residence. Normally, the proper deduction would reflect the percentage use for the rental property. But percentages can blur.<\/p>\n

\u201cYou want to think about what happens if you\u2019re audited,\u201d Fetters said. \u201cYou\u2019ll have to prove you used the lawn mower as you claimed. If you don\u2019t win, you\u2019ll pay the tax back plus penalties and interest. For something like this, you won\u2019t go to jail.\u201d<\/p>\n

Bottom line: The IRS isn\u2019t inviting anyone\u00a0earning less than $400,000\u00a0to fib. But if there\u2019s legal justification to avoid tax \u2014 and a reasonable legal judgment could be made to uphold your tax reporting rationale \u2014 than it may be worth doing.<\/p>\n

Just make sure you know the risk. And consult with a tax professional if you\u2019re concerned about potential penalties from the IRS.<\/p>\n

\u201cI would strongly encourage anyone giving tax advice to have conversations about risk with their clients on the front end,\u201d Walsh said. \u201cI lead our firm\u2019s tax controversy group and all too often, clients operate under the misimpression that when a CPA signs your tax return, every line item is bulletproof.\u201d<\/p>\n

When accountants raise tax avoidance issues upfront, they enable taxpayers to make an informed decision on how much risk they\u2019re willing to incur. They can weigh pros and cons and proceed with full awareness of what might happen if they\u2019re audited and how much money is at stake. Said Walsh: \u201c[So] if the IRS comes knocking, it doesn\u2019t come as a shock.\u201d<\/p>\n

More:<\/strong> Do you live in one of these 13 states? The IRS could do your taxes next year \u2014 for free.<\/p>\n

Also read: <\/strong>My wife and I bought a beautiful lakeside home for $700,000. It\u2019s now worth $1.2 million. Do we sell now to avoid capital gains?<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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