Underfunded Internal Revenue Service has been trusted ancient technology To generate paper audits targeting tax benefits such as the Earned Income Tax Credit for low-income households.
The result: financially vulnerable families are burdened with never-ending notices and delayed refunds.
“Low-income households are relatively easier and cheaper to audit than more wealthy individuals and corporations,” Joanna Ann, associate director of policy at Prosperity Now, a national nonprofit driving change toward racial economic equality, told Yahoo Finance. told. “I can imagine an enormous and very scary burden for low-income families to receive these notices from the IRS and to go through that process.”
Jane Lewis, a CPA and chair of the tax executive committee at the American Institute of Certified Public Accountants, said: “The IRS computer system says you didn’t respond to your notices. So they send you another notice because they think you’ve now responded.” Avoiding them. This can go as far as sending a notice of intent to the levy when you’ve already responded.
Nearly 50% of the total IRS audits went to households earning less than $25,000 and claiming the Earned Income Tax Credit, or EITC, according to Syracuse University Transactional Records Access Clearinghouse (TRAC), IRS audit burden Disproportionately falls on low-income familiesHouseholds making less than $25,000 are facing the biggest audit scrutiny in 2022, among other income categories, according to data released by TRAC.
Dragged-out audits can hurt low-income households because many rely on tax refunds to pay bills. Although IRS has recently released a new website portal To help fix issues faster, many households must amend returns during an audit, which can lead to another 16 weeks to process,
For example, Lewis is helping a young family claim the Child Tax Credit and she can see the impact.
“They’ve got two kids under the age of four, they’re working, they’re trying to do the best they can and it’s a real hardship,” the CPA said. “I’ve been waiting for that refund since April of 2022. We’re in February of 2023. And we can’t even tell them when they’ll get their refund.”
but that’s not all. Lewis said some taxpayers are so scared of the IRS that they pay the agency even when it’s due.
“They’re afraid the IRS is going to pick on them so they pay the balance when they really shouldn’t,” Lewis said.
targeting low-income families
More than 97% of low-income households scheduled to be audited in 2022 receive audits in the mail. This is because the tax agency has replaced many of its face-to-face audits with letter audits as a cost-cutting measure.
“Way [the IRS] Auditing families is mechanical, whereas higher-income families, when they’re being audited, they[may]have lawyers involved,” Ann said. Need to spend more money audit.”
Low-income taxpayers often have trouble understanding audit letters and navigating the process.
“Correspondence audit letters fail to provide a point of contact,” National Taxpayer Advocate Erin Collins wrote in her letter. Annual Report to Congress, “Low-income taxpayers face communication barriers that hinder audit resolution, increasing the burden for taxpayers and downstream consequences.”
But there is more.
IRS notices don’t always stop after taxpayers respond to the initial correspondence letter. The agency takes weeks or even months to process incoming mail. Taxpayers may receive threatening letters after they have already provided required information.
,[IRS notices] “Take your life,” Lewis said, adding that the agency could also generate false notices.
,[The notices] may not be correct because many of those are matching notices that the IRS is trying to match 1099s with what you reported on the return,” Lewis said. “Their computers can’t figure it out.”
Tax experts have a few other recommendations for taxpayers, including using the agency’s new resources to help with audits, including calling an IRS center equipped with 4,000 more phone agents in the 2023 tax season.
First: don’t ignore the audit notice; Problems will just snowball.
“a lot of times [taxpayers] have a tendency to sweep [notices] sweep it under the rug,” said Melanie Lauridson, director of tax practices and ethics for the AICPA. “And it just complicates matters and lengthens the notices process.”
Qualifying taxpayers may also visit their local volunteer income tax assistance (Vita).
“Vita Sites will refer a customer to their closest [Low-Income Taxpayer Clinic] If they get notice,” Ann said.
And finally, taxpayers can obtain assistance from the National Taxpayer Advocate by submitting request for assistance,
Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax consultant. Certified Public Accountant (CPA),
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