Latest IRS focus? IRAs

Something to keep much closer tabs on, particularly if you are knowingly skirting the heretofore unaudited rules.

From the link:

After years of haphazard enforcement, the Internal Revenue Service is starting to systematically search out violations of the convoluted rules governing individual retirement accounts. There’s a lot at stake. Americans hold $4.3 trillion in IRAs, and the cost of even innocent mistakes can be steep; if you miss taking a required payout from your IRA, Uncle Sam will demand half of the amount you forgot to take as a penalty.

The IRS was prodded to act by the Treasury Inspector General for Tax Administration. In a report earlier this year it concluded that IRA violations have been growing and estimated that more than half a million taxpayers either missed required payouts or contributed more than allowed to IRAs during 2006 and 2007.

“No one was auditing this stuff. Now the IRS is cracking down,” says Seymour Goldberg, a Woodbury, N.Y. lawyer who serves on a committee of tax pros who meet with the IRS on pension issues. Here are some IRS targets and ways to keep your retirement stash out of its sights.

IRS to use mortgage data to track down cheaters

The IRS has really been stepping up enforcement over the last couple of years. Sometimes (rarely really) you get the warm and fuzzy IRS, other times you get the buzzsaw.

I do agree with the point made below on the odd timing of this potential tax cheat catching tool.

From the link:

The Internal Revenue Service might scrutinize mortgage interest data more closely to help catch tax cheats, after prompting from an IRS auditor.

The tax collector said it will study whether it should make greater use of mortgage interest data provided to the IRS by banks, to target audits against individuals who do not file tax returns, according to a letter released Monday by the Treasury Inspector General for Tax Administration.

However, a stepped-up IRS focus on homeowners whose reported income falls below their mortgage interest obligations could attract criticism at a time when many have fallen behind on mortgage payments.

Watch out for correspondence audits from the IRS

I’d like to see some legislation taking this ability away from the IRS. Too many problems, to many moving parts, not enough personal interaction and very clearly not enough protection for the taxpayer.

From the link:

A new report from the Treasury Inspector General for Tax Administration lends support to growing complaints about the Internal Revenue Service’s big audit-by-mail program.

The IRS has increasingly relied on these correspondence audits, focused on one or two narrow issues, to maintain its audit coverage of normal taxpayers as its auditor corps has shrunk. Taxpayers are sent a letter that, for example, says their charitable or un-reimbursed employee business deductions will be denied and a certain amount of extra taxes assessed unless they provide acceptable documentation supporting the deductions within 30 days.

But the TIGTA report concludes that the correspondence audit results reported by the IRS are “inaccurate and overstated” and that there are operational problems with the program, including significant mail processing delays. These delays can cause taxpayers who respond with documentation within the required time to be assessed extra taxes because their responses don’t get to the right IRS employee in time. Eventually, they may be able to get those taxes abated through an “audit reconsideration,” but the average time to conclude one of those is 159 days, TIGTA estimates.