It should come as no surprise that Uncle Sam is watching over you. Any financial transaction could trigger a closer review from the Internal Revenue Service (IRS). Transfers of property and large gifts are some examples, as are suspect changes to a taxpayer’s reported income.
Most are also aware that the IRS is not fully staffed. The agency has been operating at bare bones for a number of years. This may make you think the odds of an audit are pretty low, but this would be the wrong presumption. This is especially true after hearing about the agency’s latest efforts.
What should taxpayers know about the agency’s latest efforts?
The Wall Street Journal recently reported about the agency’s increasing reliance on “machine learning and data analytics.” This means the IRS is using software, algorithms and bots to review tax returns and online data and flag those who deserve a closer look. One example: the IRS recently identified thousands of high-income individuals who allegedly failed to file tax returns. The agency is now setting up to send field agents out to investigate the situation.
What does this mean for taxpayers?
Although the odds of a tax audit may decrease, it is possible it may also shift. Use of these algorithms could make it more likely that the IRS flags taxpayers who are in violation of tax law. As a result, those who receive notification of an audit may be at an increased risk of a less then favorable outcome.