Open 24 hrs / 7 Days A Week
Real Tax Attorneys For Real Tax Issues

Fast Action. Proven Results.


Why tax audits target self-employed taxpayers

Money target.jpg

The estimated "tax gap" is $458 billion each year. This is the difference between what is owed and what the IRS collects. Approximately a quarter of this is due to unreported business income.

Sole proprietors who pay taxes on their business income through their personal tax returns can fall into this category. The New York Times recently discussed "low visibility" income. About 60 percent of this income (cash payments or payments unreported by outside parties) is not disclosed by business owners.

How the IRS tries to ferret out unreported income?

Tax audits are the traditional tool the IRS uses to find unreported or underreported income. Short on resources, the amount collected from tax audits actually fell to a 13-year low of $7.3 billion last year. 

Who are the people most likely to underreport income?

The Taxpayer Advocate Service has been studying how to get small-business owners to accurately report their earnings. It has found some interesting themes:

  • Those suspected of dodging taxes are clustered in certain geographic areas (the South and West - California, Georgia and Texas top the list)
  • Business owners active in local communities were more likely to underreport income on their federal tax returns (this may be related to a stronger association with local rather than federal government)
  • Self-employed people who went through an audit were less likely to report all income in subsequent years.

The IRS uses an algorithm to identify how likely a taxpayer is to underreport income. A higher score correlates with a higher risk of an audit. This may not be perfect. Of 1.2 million audits in 2014, only 13 percent resulted in a tax adjustment.

In an era of lagging resources, self-employed individuals continue to receive quite a bit of agency attention. Even when an audit does not result in a surprise tax bill, the audit process itself is costly and time consuming. In our next post, we will share tips for surviving an audit.

No Comments

Leave a comment
Comment Information

When you hire us, we can help: you:

  • Obtain emergency relief from IRS actions
  • Stop the IRS from garnishing your wages
  • Prevent levees from being placed on your bank accounts
  • Keep tax payments and penalties from spiraling out of control

Phone Answered 24/7

We are always available to answer your questions and put your mind at ease.

Call us today at
800-778-2741 for a free initial consultation

Competitive Pricing

We offer flat fees that fit your needs and your budget.

Read Our Pricing FAQ

What Past Clients Say About Us

I know I won't be getting those frightening letters anymore thanks to Chad Silver - such a weight off my mind!” - A. Gould, Ohio

Read More Testimonials

A Real History of Success

IRS debt of $682,437, Attorney Silver and his team negotiated the Debt down to zero.

View More Results

You Can Fight The IRS And Win. We Can Help.

No matter where you are in the process, we can help you make the best of your situation. Call us toll free at 800-778-2741 for a free case evaluation.

Get A Free Consultation »

Privacy Policy | Business Development Solutions by FindLaw, part of Thomson Reuters.

Back To Top