The Internal Revenue Service audit is a unique instrument of government power in American life. Virtually all governments have a need and desire to intimidate the people who live under them. Dictatorships, communist and otherwise, have an especially great need to terrorize their populations, lest the people rise up to destroy their oppressors; thus the secret police, the midnight knock on the door, the "private interrogations."
The US government, on the other hand, has traditionally had less need for such devices to stun and stupefy the American people. When laws have gone largely ignored—the prohibition of alcohol and marijuana spring instantly to mind—the government has generally stumbled along cursing constitutional protections, until lawmakers are elected who have the courage to change the laws.
But taxes, the lifeblood of the state, are different. Even when the masses begin to circumvent or revolt against obscene tax loads—as is happening today with the growth of the subterranean economy—no one, but no one, in government is going to change fundamentally the equation of mass confiscation. I mean, those people didn't spend all that time and money to get into office so they can then prevent themselves from enjoying the fruits of their labors. No way! Ronald Reagan's rhetoric notwithstanding, no politician (with the rare exceptions of some "cranks" who read the Constitution) is truly interested in dramatically shrinking the take of government.
Hence the need for our own version of the "knock in the night." It is the much-dreaded income tax audit. It's not truly terrifying like the secret-police counterpart, but it does give the federal government a chance to flex its muscles in front of absolutely any American it wants to. The audit allows Big Brother to delve into your personal life, force you to prove your compliance with laws that are totally incomprehensible, fine you, inconvenience you by using your time, etc. Good stuff, for those who can't have the fun of real, iron-fist intimidation.
But there are only two teeny little things I want to tell you about audits. First, an audit letter should be greeted with joy, especially if it's the first time you've ever had the opportunity to go through it. Second, sadly, your chances of being audited, especially if you make less than $50,000 a year, are minuscule.
Now why would anyone say that an audit should be heartily greeted? Because it gives you an opportunity to see how the system works, to get into "the belly of the beast" and find out that—voilà!—it's not really all that terrifying!
You see, the IRS and related functionaries spend a lot of time and thought and energy trying to scare Americans. Their audit strategy—whom they audit, when they audit, where they audit—is designed to maximize fear. But when you get a chance to step right in there and see the offices, argue with the "secret police," go through the whole procedure, you find that it's not all that bad.
And what's more—this is the good part—if you've been even slightly discreet, the IRS generally turns out to be the proverbial paper tiger. Oh sure, they can sometimes make you give back deductions, and they'll tack on interest. Added penalties and fines are often a possibility, especially when they want you. But by and large, it's only money, and the important thing to learn is that there is no real physical danger. This is bureaucracy, man. So stop feeling and acting like they're going to break your elbows and tear off your kneecaps.
Besides, I never let them assess extra costs against a client without dragging them endlessly through each and every appeal procedure that is economically feasible. Keep in mind that they want a passive, fearful taxpayer, not someone who's going to scratch, bite, and claw every legal step of the way. And all that for what's usually peanuts, in the case of us working types.
There is the sad side of all this, however. You're probably not going to have the opportunity, ever, to tell your friends how easy and, really, unterrifying the whole thing is, because you probably won't go through the experience. If you make less than $50,000 a year (as do about 94 percent of us), the chance of your romping and stomping through an audit was 3.17 percent in 1981 and only 2.9 percent in 1982. Moreover, the chances you'll be audited are actually decreasing, partly because even politicians are loathe to have to explain to their constituents why they voted to increase the swarms of bureaucrats to gnaw at our sustenance.
If you made less than $25,000, your chances of getting audited in 1981 were 3.13 percent, and last year, they were only 2.4 percent. And get this: those last two figures, small as they are, pertain only to people who itemized deductions on the Schedule A. If you made under $25,000 and didn't itemize (the IRS loves those types), then the percentages of returns audited go down to 0.61 percent in 1981 and 0.57 percent in 1982. Even if you're a "fat cat" who made over $50,000, in 1981 you had a mere 7.83 percent chance of being audited and 5.68 percent chance in 1982. And then you probably had a CPA or lawyer go in and abuse the IRS for you. I love it!
So the message for all you scaredy-cats out there is, stop sweating it so much. The IRS and the federal government want you to be fearful. Make no mistake about it, the IRS is an agency that regularly attempts to trample our rights generally and constitutional rights specifically. It should be treated warily and with all the respect appropriate for a government agency with the powers it has.
But to be stunned and stultified, as so many taxpayers are, is counterproductive. Besides, the opposite attitude, especially coming out of an audit, can yield a very useful store of knowledge. More than a few people, having gone through an audit with the attitudes I've suggested, have come out of it saying, "I'll never be scared of them again. Now that I've seen how they work and what they're looking for, I'll just be sure to cover my rear that much better. But I'll never be scared of them again."
Attaboy, citizen. Spit in their eye!
Tim Condon is an attorney and a tax specialist practicing in Florida.