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IRS Using New Software To Detect Anomalies

The IRS has new software that will randomly select a taxpayer and compare that taxpayer’s latest tax return to their past tax returns. If there is any detection of a departure from past returns or an inconsistency, the taxpayer will be audited. The software also checks whether the taxpayer is linked to any family member or business partner who is currently being audited.


Generally, the IRS will audit returns only up to the past three years. If a substantial error is found, they may go back six years.  If errors are found, the IRS can heap on penalty charges of 20% of the disallowed amount for filing an erroneous claim for a refund or credit, or up to $5,000.00 if the tax return is what the IRS considers ‘frivolous’. Frivolous usually means there wasn’t enough information to decide whether the tax return was correct or incorrect. If you are being audited, or want to avoid an audit, it is prudent to contact an experienced tax lawyer as soon as possible.


If the IRS considers the taxpayer’s case to be more serious, the taxpayer may face criminal charges for tax evasion or tax fraud.


There is a little bit of good news for the taxpayer. The IRS audited less than 1% of the returns in 2017 and the number may be a bit lower for this year.


There are triggers or red flags that the IRS and their sophisticated computers look for. The software can detect what fair amounts of deductions are in comparison to the taxpayer’s income. If a taxpayer takes a higher than an average deduction for areas such as charity, real estate or loan interest, the IRS will most certainly take another look. If you really did donate a large amount of what you earn to a charity, make sure you have all the receipts to prove your case.


Many Americans have a hobby that they also receive an income from. You have to report any income from the hobby and you’ll have to determine whether your hobby is a business. The IRS usually allows deductions on hobby expenses up to the amount of the hobby income. Our experienced and qualified tax attorneys can help you with this determination and whether the formation of a business would be to your advantage. Our business law attorneys can counsel you on the different types of business formation, the advantages and set up the business for you.


The IRS is notified of any early retirement account withdrawals. If you are under the age of 59 ½, a 10% penalty will be charged along with the tax paid on the withdrawal. Almost 40% of taxpayers who made a withdrawal did not report it. 


Our business law attorneys  assist clients in structuring transactions in the most tax-favorable manner. If you have received a letter from the IRS for an audit, unpaid back taxes, claims or appeals, call our office today to schedule a consultation. We offer experienced and knowledgeable advice for optimum legal strategies and results.    


irs tax lawyers in denver

Just in time for tax audit season, the IRS has new software to detect anomalies in tax returns, and are focusing on business and hobby tax expenses.

To avoid an audit, it is wise to use an experienced tax lawyer to review and file your tax return. Contact a tax attorney immediately if you are being audited.


Call 303-618-2122

to schedule a consult.

Located in Denver, Colorado.

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