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What happens when you don’t file a return? Can you still be audited?
If you are in the IRS computer, if they can find you, the IRS can request that you file a return. The IRS has the legal authority to file (and audit) a tax return in your name if you ignore their requests for you to file. The Internal Revenue Manual directs the auditor to come up with the correct tax return, which gives the auditor a license for invention. In addition to what the IRS may have in their records, they may also use information from the Bureau of Labor Statistics to estimate your income and expenses. They use this method when the income sources they have on file for you show either a small income or no income at all. Yet you live in the ritziest section of town. The BLS data shows the government’s estimate of the minimum amount of income necessary to live on given your standard of living (the area, family size etc.). To get an approximation on income level, the auditor may just rely on industry standards. For instance the auditor may use averages for sales and profit margin on all US specialty clothing boutiques to estimate how much Shelley’s specialty clothing boutique made. After the Auditors report of a non filed return is complete you will receive a copy. If you do not agree with the report you will have an opportunity to dispute with your own figures or file a tax return. Or the IRS will send you a Notice of Deficiency. This gives you 90 days to contest the report in tax court. Otherwise, if you do agree with the report you can just sign it and move on. |