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Sequester silver lining: taxpayers face fewer audits

One of this year's hit movies was called Silver Linings Playbook. The story follows the craziness of falling love, with the added plot test of a leading character who is struggling to overcome a mental health issue.

In the context of federal tax law, the across-the-board budget cuts known as the sequester are causing a different type of craziness. The cuts have started to have an impact on the ability of federal agencies to do their work. And that includes the IRS.

Taxpayers in California and across the country may therefore be less likely to face IRS tax audits this year. To taxpayers who might otherwise have been audited, the sequester cuts could even be considered a silver lining playbook of sorts.

To be sure, taxpayers must still be on their guard to minimize tax audit red flags. The IRS has hardly closed up shop for good. After all, there were still 1.5 million tax audits last year.

And we have written regularly about these audit red flags in recent posts.

Still, the furlough (unpaid vacation) days for IRS employees that are required by the sequester cuts are expected to have an effect on IRS enforcement efforts. For example, if an IRS agent has 20 audits assigned to him or her, taking five furlough days this summer will mean it will take longer to resolve those cases. And the agent will be less able to start audits.

Of course, for the U.S. Treasury, there is no silver lining from this scenario at all. Due to the reduced capacity to conduct audits, cash-starved government will be less able to bring in more revenue from audits.

Indeed, even before the sequester cuts took effect this had begun to happen as a result of earlier budget cuts. In 2012, the number of IRS audits increased by 5 percent.

Source: "Spending cut bright spot: Fewer IRS audits," CNN Money, Blake Ellis, 4-29-13

Please visit our page on IRS audits and appeals.

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