The IRS Goes Where The Money Is

slick willie sutton(I got this email last week from Barbara over at SpringWell Financial, and I loved it so much that I asked her if I could share it with y’all.  She said no, but I’m gonna do it anyways!  Haha… nah,  of course she said it was okay.  I’m too much of a wuss to do something illegal like that anyways ;) Hope you learn something about taxes today!)

The outlaw Willie Sutton stole an estimated $2 million over a 40-year career robbing banks — and scored the ultimate “success” in his business, living long enough to die of natural causes. Sutton always carried a pistol or Tommy gun with him on jobs, declaring “you can’t rob a bank on charm and personality.” But the gun was never loaded, because, as he said, someone might have gotten hurt! And he became legendary, ironically, for something he never actually said.

According to the story, Sutton was asked why he robbed banks — and replied “because that’s where the money is.” But in his 1976 autobiography, Where the Money Was: The Memoirs of a Bank Robber, he confessed that credit for the line belongs to “some enterprising reporter who apparently felt a need to fill out his copy.”

What does a depression-era bank robber have to do with taxes? Well, the IRS estimates that outlaw taxpayers cost the Treasury $385 billion per year in uncollected taxes — roughly 15% of the amount they believe is due under current law. So they work hard to close that gap. In FY 2011, the IRS employed over 22,000 revenue officers, revenue agents, and special agents. They conducted 391,621 “field” audits and 1,173,069 less-intensive “correspondence” audits. They filed levies on 3.7 million taxpayers and filed over a million liens. But they can’t turn over every rock. So how do they case their targets?

Earlier last month, the IRS released their FY 2011 Enforcement and Service Results revealing how likely you are to be audited. And even Willie Sutton would have appreciated the IRS’s “M.O.”:

  • If you make less than $200,000, your overall audit risk is only about one in a hundred. (Of course, that average encompasses a range of possibilities. If you run a sole proprietorship in a cash-heavy business like takeout pizza, your risk may be far higher.)
  • If you make over $200,000, your overall audit risk rises to about one in twenty-five. Obviously, the IRS sees more opportunity in chasing higher income earners.
  • If you pull down $1 million+, your audit risk rises again to one in eight. Welcome to the 1%!

The IRS likes targeting entertainers, athletes, and other celebrities, too. Sure, it sets a high-profile example for the rest of us. But it’s also (spoiler alert) where the money is. Take Hollywood trainwreck Lindsay Lohan, for example. Google her name, and you’ll usually find it followed by “failed another breathalyzer test” or “missed her court-appointed community service.” But last month, Lohan made a different kind of headline. That’s right, the IRS filed a lien against her home seeking $93,701.57 in unpaid taxes from 2009.

Our jobs as accountants is to help you pay the minimum tax allowed by law. But we know the IRS is out to challenge us, so we don’t cut corners. We give you good, solid planning. That way, even if you do lose the “audit lottery,” you’ll feel safe knowing your savings are court-tested and IRS-approved.

EDITOR’S NOTE:  Have any of you ever been audited before?  Did it come out okay? 1 in 100 doesn’t seem bad at all, but I def. don’t want to find experience it, haha… though I’m pretty sure w/ all my blog stuff going on I’ll be due for one at some point over the next few years ;) Yet another reason to be friendly w/ an accountant you trust!

Barbara Richardson is a CPA with SpringWell Financial – a full-service Certified Public Accounting and personal financial consulting company dedicated to empowering individuals and small businesses to financial freedom.

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  1. Jenna February 2, 2012 at 8:30 AM

    I’ve been audited twice! And I’m only 26! Let me tell you…your heart stops when you get those think IRS envelopes.

    The first time I was audited was in 2007 for my 2005 taxes. My parents and I filled the forms out wrong due to my being in college. They wanted money from me, but they ended up refunding me money. :)

    The second time was in 2010 for my 2009 taxes. I took money out of an account my grandparents set up to pay for my college loans. I didn’t receive the tax forms and honestly forgot about it. The IRS said that was income so they wanted their money. After countless phone calls with the IRS and American Funds, it ended up I didn’t owe them anything. Just my time. :)

    I hope I never get audited again!

  2. Rich Uncle EL February 2, 2012 at 8:42 AM

    Great Post, I never knew the odds of getting audited. I’m sure if you make under 50K the odds are even greater. Oh well gotta keep increasing $ no matter who is looking out.

  3. Rich Uncle EL February 2, 2012 at 8:42 AM

    Never been audited before by the way. Thanks.

  4. Money Beagle February 2, 2012 at 8:57 AM

    I’ve never been audited and I’m hoping to keep it that way. I keep good records and we use a CPA that double and triple checks everything so I’m hoping we don’t ever get red flagged for anything!

  5. Michelle @ Making Sense of Cents February 2, 2012 at 9:15 AM

    I’ve been “audited” before, but all I had to do was show them like a million papers and then it went away.

  6. Carrie - Careful Cents February 2, 2012 at 9:39 AM

    I was sent multiple “correspondence” audit letters stating I owed over $13,000 to the IRS. Being an accountant and tax consultant myself, I knew I didn’t owe the money. I keep records of every piece of paper I exchange with the IRS, which saved me in this case. I ended up getting the audit reversed, even to where they paid me $43 for interested earned! The IRS doesn’t always know what they are talking about, and they lose paperwork just like everyone else. :)

  7. J. Money February 2, 2012 at 9:58 AM

    @Jenna – Wow, you should go play the lottery! Haha… thanks for sharing my friend :) Glad they all ended up okay in the end!
    @Rich Uncle EL – Yup, you sure do. It’s always better to make more money no matter what cuz it gives you options to do whatever you need or want later ;)
    @Money Beagle – I hope not either! That’s the only thing that keeps me sane too btw, using an accountant. I’ve never been audited myself, but I have been asked to report something which I didn’t understand, but I forwarded over to my CPA and she handled it from there and all was good :)
    @Michelle @ Making Sense of Cents – Haha.. is that all?
    @Carrie – Careful Cents – Wow, good for you! I believe it over there too – they’re people doing a job just like all of us. Some are great at what they do, and others not so much ;)

  8. Monica C. February 2, 2012 at 9:59 AM

    Although we follow the rules, every year we fear an audit because we are self-employed. You would think that the government would like to help small businesses, but it feels like the opposite is true when it comes to taxes. The IRS is scary!!!

  9. J. O. February 2, 2012 at 10:05 AM

    We were audited last year for 2009. They thought we owed them another 2k. It turned out that we only owed them about 1k. It was our mistake — my husband received a 1099 from a company he did some work for but didn’t realize the company sold during his contract so we didn’t realize we were missing a second 1099. We have a great CPA and he took care of it all for us. @Jenna – my heart stops when I get anything from the IRS too! I know the feeling!

  10. Melissa February 2, 2012 at 10:08 AM

    I’ve never been audited, but I know a few people my age (mid twenties) who have, and even a couple who have been audited twice! There are some red flags I guess, and then other times it’s totally random.

  11. The Ten Bob Millionaire February 2, 2012 at 10:30 AM

    Monica C: My other half is self employed and always feels the same way. He and his CPA follow the rules and take a conservative approach but this is always a stressful time of year.

  12. LB February 2, 2012 at 11:28 AM

    When I got audited, last year to be exact, I was in complete shock. Freaked out, called my husband, he freaked out, and then we actually sat down and read the letter. Turned out we owed a decent amount in taxes on some money. For the life of us, we couldn’t figure out where that money was coming from. We thought maybe unemployment, maybe from a severance package my husband received, but still couldn’t figure it out.

    Turns out that money was a college fund set up for my husband as a child that no one knew about. It was from a his grandfather on his father’s side, whom he had never spoken to. It turned out to be a nice sum and that became one of the best days of our lives. I mean, hello, free money! We ended up reinvesting it and not using it for anything, but it was the best shock ever!

  13. Jerret February 2, 2012 at 12:40 PM

    @jenna I don’t think that’s considered an audit. That’s the IRS getting money it’s owed. I got one of those letters because I forgot to report an interest income form. My parents owned a business and got audited 2 years in a row. And let me tell you, it was awful. My mom was near mental breakdown by the time it was over.

    An IRS agent came over to the business everyday for nearly 3 weeks and sat on the floor in my mom’s office looking at every piece of scrap paper imaginable. I was old enough at the time to realize I was glad it wasn’t me!

  14. MoneyMateKate February 2, 2012 at 12:45 PM

    So a glance at the math for us <$200K types indicates a roughly 1 in 470 chance of a field audit, which is the scary one. The letter audit always struck me as extortion…of course I'll pay you $177.34 to go away. I wonder…do the letters telling me that the IRS believes *they* owe *me* money, check enclosed, count as an audit?

  15. retirebyforty February 2, 2012 at 1:08 PM

    Not yet, thanks goodness! My tax wasn’t very complicated previously, but it is getting more and more difficult. Hope no audit anytime soon.

  16. Carrie February 2, 2012 at 1:37 PM

    We got audited once in 2009 for our 2007 taxes. The letter came in about a week before our first child was born! It turned out we didn’t report some income my husband received for doing some independent contracting for his father’s company. I do the tax filing and I didn’t even know about the contract work. The company didn’t send us a tax form, but they sent one to the IRS. Grrr.

    Thankfully the IRS people are really nice on the phone and they let us pay in installments. Between that and the new baby and unpaid maternity leave, 2009 was an interesting year, financially.

  17. Kris @ Debt-Tips February 2, 2012 at 2:02 PM

    I was audited 20 years ago, apparently before they went “where the money is”. I was a college student home for the summer and my landscaping boss paid me half check half cash. Silly me, I thought he was giving me cash for the weekend, but clearly he was only reporting the check amount. So I filled out a form and paid a few bucks and that was that.

    I’ve since been self employed (at least partly) for more than 10 years and have not been audited since (fingers crossed, wood knocked).

  18. Corey @ Passive Income to Retire February 2, 2012 at 3:40 PM

    No audit here, but with the side business gearing up, I am paying extra attention to “cross all my t’s”. Don’t want a silly mistake sending the irs after me.

  19. Brent Pittman February 2, 2012 at 7:19 PM

    Any stats on small businesses being audited? (I’m clean btw if anyone is monitoring this).

  20. Honey February 3, 2012 at 2:09 PM

    I think that if you rent instead of own, the odds you’ll be audited are infinitesimal.

  21. American Debt Project February 4, 2012 at 12:08 AM

    Those are good odds to know! The IRS has a pretty good strategy..they sound like classic gold-diggers :)

  22. J. Money February 4, 2012 at 1:44 PM

    @Monica C. – Haha, yeah it is! But as long as you’re playing by the rules, then at least you know there’s nothing to worry about ;)
    @J. O. – That sucks! I fear making that mistake too – I do my best to keep track of ALL money that comes in, whether I get a 1099 or not, and report it all anyways, but I can see something falling through the cracks like that too. All we can do is our best! :)
    @Melissa – Man, getting hit twice in your 20’s is no joke. I hope I can get out of my 30s without ever getting one! *knock on wood*
    @The Ten Bob Millionaire – Very stressful for sure, I’m glad I’m not a CPA ;)
    @LB – WOWWWW very cool! A great story to tell too, I love it :) Thx for sharing!
    @Jerret – Wow that sucks… and twice in a year?? They must have thought something really fishy was going on, I’m glad she’s done with it now (hopefully)!
    @MoneyMateKate – HAH! That would be nice ;)
    @retirebyforty – Same here – mine’s getting more complicated too, gotta make sure we stay on track!
    @Carrie – Awww, well I’m glad it all worked out in the end :) And you have a healthy baby now! At least that set off the nastiness, haha…
    @Kris @ Debt-Tips – Woohoo! Hope you keep your streak alive!
    @Corey @ Passive Income to Retire – Good call, that’s important :)
    @Brent Pittman – Haha, I don’t know of any…
    @Honey – I bet there’s some truth to that :)
    @American Debt Project – Well, we wouldn’t need them if people followed the law! That’s what’s so frustrating really – that people F around all the time and try to get away with it, and then all of us “good” ones have to wade through all the $hit because now the gov’t doesn’t trust everyone… stupid people are always ruining it for others ;)

  23. Renee February 5, 2012 at 9:49 PM

    We haven’t been audited yet (I’m 28), but I’m sure there will come a day. :P

  24. J. Money February 6, 2012 at 4:31 PM

    Hopefully not anytime soon ;)