4 ms·

That is ignoring the enormous externalized costs. I have known business to have spent hundreds of thousands of dollars in professional services when being inves

That is ignoring the enormous externalized costs. I have known business to have spent hundreds of thousands of dollars in professional services when being investigated that have done absolutely nothing wrong.

gamblor956 8y ago
As one of those former professional services providers, I can count on one hand how many former clients out of hundreds that had done "absolutely nothing wrong" and of those few clients, I can't name any that spent anywhere close to hundreds of thousands of dollars to deal with the audit.
- dsfyu404ed 8y ago
  >I can count on one hand how many former clients out of hundreds that had done "absolutely nothing wrong" I think the person you're replying to means "violated the tax code in a minor and non-malicious way" whereas you mean "literally did not violate the tax code at all".
  - gamblor956 8y ago
    I'm sure he did, but I don't know any clients that were audited over "minor and non-malicious" issues. There's a materiality threshold in place before the IRS will initiate audits, due to the resources required.
    - deleted 8y ago
      [deleted]
    - sokoloff 8y ago
      Not completely true. I was randomly selected for a TCMP audit. My tax professional is hoping to keep my compliance cost under $2500, but makes no promises. That's for a reasonably typical (and by no means aggressive tax positioned) MFJ + 2 kids return.
      - gamblor956 8y ago
        The TCMP audit is the random audit. It's not based on any sort of categories or taxpayer attributes. It's why its so cheap to deal with, and most people do not usually hire accountants.
        sokoloff 8y ago
        $2500 is "cheap" for an individual?! Perhaps I'm golfing at the wrong club...
    - jcranmer 8y ago
      I was audited by the California tax agency. I did have an error--I mistyped the code of the tax credit, so they thought I was claiming some solar energy tax credit instead of the Other State Tax credit (apparently, the line on the tax form that says the name of the credit doesn't matter; all that matters is that three-digit code). The sad part is the first I heard of the audit was when I got a letter saying "you owe us $700 ($450 in unpaid taxes, the rest in interest), pay us NOW or we will garnish your wages." Considering that anyone who actually looked at the tax packet should have figured out immediately that the only fault was a mistranscription in the code, they must have wasted quite a bit of money to gain back ultimately nothing.
      - village-idiot 8y ago
        I got a scary letter from a former state I lived in saying "you didn't pay any taxes for the the year X, pay us YYYY + 20% immediately", when I had actually left the state right before the start of X, and returned shortly after X. Thankfully I had records and an accountant, but a very stressful situation to find yourself in.
        loeg 8y ago
        To be clear, the IRS and state tax agencies are different entities.
        village-idiot 8y ago
        Yes. I knew that, but good clarification for the reader.
        datavirtue 8y ago
        Cities do that as well. I moved out of a city, closed out my taxes but ten years later they sent a threatening letter and tax assessment. My family runs a tax firm in that city so it was just a simple email for me to make it go away but most people would have to prove they left the city. Have fun. They did this to me for years after I left the city but the ten year anniversary was totally rediculous.
    - jdavis703 8y ago
      I was audited for a mistake in the $1,000 range. I had forgotten to report one of the many 1099 forms I received one year. It seems like the IRS has systems in place to detect this kind of mistake. I paid the ~$300 I owed and went on my way.
    - schmookeeg 8y ago
      Too bad I wasn't your client, you'd have experienced one. :) I owned a business that was randomly selected for an NRP audit a few years back. Spent 35 grand on CPAs and defense. After 4 months of an "up to the elbow" exam of our books, received this from the IRS: "After our audit, we are making the following changes to your return: " ...that was it. Nothing. No changes. Not even embarrassment or "lol just doing my job, them's the breaks kid" attitude. A total goat rodeo, the entire process. Imagine having to justify every cent on the books in OR out -- for a $2MM revenue business -- 3 years after the return was filed. Seriously impossible. Worse, just before the above letter, we were offered a settlement offer from the IRS for $20K -- to make them just go away. We declined.
- milesvp 8y ago
  As a funny anecdote, I know one person who did so much wrong with his taxes for a high value personal business that he received a check from the IRS each of the 3 times he was audited after the business folded. I don't know the specifics, but apparently, his business was some sort of an anomaly and the IRS was sure that he underpaid his taxes for a number of the years the business was running. He was sort of clueless about his expenses, so when the IRS audited, they ended up finding a whole lot of expenses that he hadn't properly accounted for and when he refiled, he got a rebate check. This happened 3 times before the IRS finally accepted that his taxes were correct.
- Nasrudith 8y ago
  Sounds like a client base bias. Since I know two major 'red flags' for audits which are completely innocent like self-employment and making lower quarter six figures in one case resulting in multiple failed audits. Even in the sense that cost money recalculations showed that taxes were overpaid. Cynically perhaps some of them operate on 'predator logic' of going after juicy enough but lacking dedicated accountants then perhaps petty spite once they already were made fools of by. There are some definite rotten apples within the IRS.
- datavirtue 8y ago
  My grandmother just helped a guy who was being harassed for $60k he did not owe. He was about to just pay it but she said "screw that" and ended up getting him cleared. $0
scrollaway 8y ago
Does spending more on the IRS have increase those externalized costs? Spending more, ideally, should also mean spending on simplification. Making it easier for both people and businesses to pay their due, and costlier not to. Reducing the externalities, not increasing them.
Firadeoclus 8y ago
There is that cost. On the other hand, there is money, time and energy spent on facilitating tax fraud because the perception is that you can get away with it.

gamblor956 8y ago

As one of those former professional services providers, I can count on one hand how many former clients out of hundreds that had done "absolutely nothing wrong" and of those few clients, I can't name any that spent anywhere close to hundreds of thousands of dollars to deal with the audit.

dsfyu404ed 8y ago
>I can count on one hand how many former clients out of hundreds that had done "absolutely nothing wrong" I think the person you're replying to means "violated the tax code in a minor and non-malicious way" whereas you mean "literally did not violate the tax code at all".
- gamblor956 8y ago
  I'm sure he did, but I don't know any clients that were audited over "minor and non-malicious" issues. There's a materiality threshold in place before the IRS will initiate audits, due to the resources required.
  - deleted 8y ago
    [deleted]
  - sokoloff 8y ago
    Not completely true. I was randomly selected for a TCMP audit. My tax professional is hoping to keep my compliance cost under $2500, but makes no promises. That's for a reasonably typical (and by no means aggressive tax positioned) MFJ + 2 kids return.
    - gamblor956 8y ago
      The TCMP audit is the random audit. It's not based on any sort of categories or taxpayer attributes. It's why its so cheap to deal with, and most people do not usually hire accountants.
      - sokoloff 8y ago
        $2500 is "cheap" for an individual?! Perhaps I'm golfing at the wrong club...
  - jcranmer 8y ago
    I was audited by the California tax agency. I did have an error--I mistyped the code of the tax credit, so they thought I was claiming some solar energy tax credit instead of the Other State Tax credit (apparently, the line on the tax form that says the name of the credit doesn't matter; all that matters is that three-digit code). The sad part is the first I heard of the audit was when I got a letter saying "you owe us $700 ($450 in unpaid taxes, the rest in interest), pay us NOW or we will garnish your wages." Considering that anyone who actually looked at the tax packet should have figured out immediately that the only fault was a mistranscription in the code, they must have wasted quite a bit of money to gain back ultimately nothing.
    - village-idiot 8y ago
      I got a scary letter from a former state I lived in saying "you didn't pay any taxes for the the year X, pay us YYYY + 20% immediately", when I had actually left the state right before the start of X, and returned shortly after X. Thankfully I had records and an accountant, but a very stressful situation to find yourself in.
      - loeg 8y ago
        To be clear, the IRS and state tax agencies are different entities.
        village-idiot 8y ago
        Yes. I knew that, but good clarification for the reader.
      - datavirtue 8y ago
        Cities do that as well. I moved out of a city, closed out my taxes but ten years later they sent a threatening letter and tax assessment. My family runs a tax firm in that city so it was just a simple email for me to make it go away but most people would have to prove they left the city. Have fun. They did this to me for years after I left the city but the ten year anniversary was totally rediculous.
  - jdavis703 8y ago
    I was audited for a mistake in the $1,000 range. I had forgotten to report one of the many 1099 forms I received one year. It seems like the IRS has systems in place to detect this kind of mistake. I paid the ~$300 I owed and went on my way.
  - schmookeeg 8y ago
    Too bad I wasn't your client, you'd have experienced one. :) I owned a business that was randomly selected for an NRP audit a few years back. Spent 35 grand on CPAs and defense. After 4 months of an "up to the elbow" exam of our books, received this from the IRS: "After our audit, we are making the following changes to your return: " ...that was it. Nothing. No changes. Not even embarrassment or "lol just doing my job, them's the breaks kid" attitude. A total goat rodeo, the entire process. Imagine having to justify every cent on the books in OR out -- for a $2MM revenue business -- 3 years after the return was filed. Seriously impossible. Worse, just before the above letter, we were offered a settlement offer from the IRS for $20K -- to make them just go away. We declined.
milesvp 8y ago
As a funny anecdote, I know one person who did so much wrong with his taxes for a high value personal business that he received a check from the IRS each of the 3 times he was audited after the business folded. I don't know the specifics, but apparently, his business was some sort of an anomaly and the IRS was sure that he underpaid his taxes for a number of the years the business was running. He was sort of clueless about his expenses, so when the IRS audited, they ended up finding a whole lot of expenses that he hadn't properly accounted for and when he refiled, he got a rebate check. This happened 3 times before the IRS finally accepted that his taxes were correct.
Nasrudith 8y ago
Sounds like a client base bias. Since I know two major 'red flags' for audits which are completely innocent like self-employment and making lower quarter six figures in one case resulting in multiple failed audits. Even in the sense that cost money recalculations showed that taxes were overpaid. Cynically perhaps some of them operate on 'predator logic' of going after juicy enough but lacking dedicated accountants then perhaps petty spite once they already were made fools of by. There are some definite rotten apples within the IRS.
datavirtue 8y ago
My grandmother just helped a guy who was being harassed for $60k he did not owe. He was about to just pay it but she said "screw that" and ended up getting him cleared. $0

scrollaway 8y ago

Does spending more on the IRS have increase those externalized costs? Spending more, ideally, should also mean spending on simplification. Making it easier for both people and businesses to pay their due, and costlier not to. Reducing the externalities, not increasing them.

Firadeoclus 8y ago

There is that cost. On the other hand, there is money, time and energy spent on facilitating tax fraud because the perception is that you can get away with it.