New IRS Study

IRS has let out the fact that they need to do detailed examinations of 50,000 tax returns in order to update their info for profiling of potential tax cheats. This is the same program that was cancelled a few years ago after IRS and Congress received so much flack over the plan and the IRS morons, in the most ridiculous example of negotiating strategy, threatened to call them off if Congress refused to allocate more money for IRS.

Basically, the 50,000 tax returns to be selected will be chosen from the earliest ones received, and will proportionately represent all types of returns. Because most tax returns are 1040s, they should represent 90% or more of the returns selected.

50,000 returns out of the 100 million returns filed every year is a small percentage; but even that possibility is too scary for many people. It’s like the “being hit by lightning” analogy. My advice is the same as it was last time. We prepare the returns as early as we can, especially if there may be some taxes due, and then we file extensions (with payments if needed) to put off the actual date that IRS actually receives the return until 8/15/02 or 10/15/02. The only downside will be for those people who are overpaid and need the refund money. The only way we can get that back is by submitting the actual tax return.

For more details, see IRS News Release 2002-05(News Release IR-2002-05) and IRS fact sheet (News Release FS-2002-07) on the National Research Program.

The best explanation of this I have seen so far is this one from Tom Herman of the Wall Street Journal.

Although IRS admits that this is a research project for its benefit, they haven’t changed their policy of requiring the lucky selectees to foot the bill for their professional representation, which could run into several thousand dollars. That is plain wrong on so many levels that I would encourage anyone concerned about this to lobby their elected rulers to require IRS to reimburse for these fees. It is true that IRS is using very out-date statistics in its tax cheat profiling and should update that data. However, why should innocent people be forced to pay for that out of their own pockets?

KMK

Swearing That Numbers Are Accurate

Here’s an interesting concept, having the CEOs of big corporations sign affidavits, under penalty of perjury, that their financial statements are accurate. I’m sure most people thought this was already being done; but there have been so many ways for the top execs to deny responsibility for the numbers, that this is a good step in the right direction.

This doesn’t sound any different from the penalty of perjury statement that we sign on our tax returns before submitting them to IRS.

In actuality, it may not make a lot more difference because it will only apply to corporations with over $1.2 billion in annual revenue. Companies that big have such large accounting departments and multiple levels of bureaucracy that it won’t be difficult for the CEO to effectively deny any knowledge of the details of the figures.

KMK