As you probably know, the incomprehensible amount of information available on the internet is a good news, bad news situation.
The good news is that within seconds, you can probably find advice for just about anything you can imagine. Hearing a funny noise in your car? No problem, just key in your symptoms and let the virtual knowledge exchange commence. Hearing a funny noise in your stomach? Same thing.
The bad news, of course, is that a good deal of this advice isn’t reliable — and some of it is flat out wrong. And while this usually isn’t a big deal for more mundane things in life (e.g. what movie to see, etc.), when it comes to taxes in general — and an IRS audit in particular — a little bad information can be extremely unsettling, and possibly rather costly.
With this in mind, here are five persistent myths about IRS audits that you may have come across, and indeed, might be keeping you awake at night:
Myth: If you get audited, then you might as well pull out your checkbook, because you’re going to owe more money.
Fact: While it’s true that some filers incur additional tax liability after an audit, there are many (and we’re talking thousands here) that actually get money back from Uncle Sam, because they’ve paid too much. You’d be surprised at how many filers overpay each year.
Myth: If you file your taxes early (i.e. in early March) you’re more likely to get audited than if you wait until just before the deadline, and get lost in the crowd or procrastinators.
Fact: Filing early has no bearing on whether you’ll get audited. The IRS is perpetually backlogged and takes years to evaluate returns. They have up to three years to review a return (but if they suspect or allege fraud or tax evasion they can go back decades).
Myth: If you get selected for an audit, the process is going to make a root canal seem like a proverbial picnic.
Fact: Granted, getting audited isn’t anyone’s idea of a good time. However, the perception of being thrown into an underground lair and beneath a 200-watt light bulb as you get worked over by a team of good IRS agent/bad IRS agent isn’t even worthy of a bad comic book. Keep in mind that there are different types of audits, including correspondence audits. These are essentially the IRS asking for more information or clarity, and can be handled over the phone, through email, or by sending couriered documents.
Myth: If you’re self-employed, you might as well brace for impact because you’re going to get audited.
Fact: Decades ago when working at home was relatively uncommon, it was true that self-employed filers tended to get on the audit radar screen. But that’s not the case anymore, simply because millions of people in all sectors and industries legitimately work from home. With this being said, remember that you aren’t allowed to deduct any at-home business expenses (not even your stapler) if your principal place of work is outside the home.
Myth: If you get audited, it’s safe to have your accountant lead the process with the IRS since he or she is smart and reputable.
Fact: It’s great that you have a smart and reputable accountant. But your correspondence and any work product, including work-in-progress, is not confidential. According to experienced tax attorney and ESPN radio personality Jeffrey B. Kahn (learn more about him at http://www.kahntaxlaw.com) the IRS will not hesitate to subpoena testimony and documents from your accountant that could lead to a much deeper examination, and in some cases, trigger a referral to the Department of Justice for criminal prosecution (even if the allegations ultimately turn out to be baseless, the process is expensive, prolonged, and your stress levels will go through the roof).
The Bottom Line
We’ve all heard that “Google is your friend” — but sometimes, the wrong information can be costly; or even catastrophic. Debunking these 5 enduring IRS audit myths can help you avoid heading down the wrong path and making unwise decisions. And hopefully, you’ll be able to get some sleep at night!