It is hard to believe though our country is 235 years old, we have only been taxed on our income for 109 years. It was not until the 16th Amendment to the US Constitution was ratified on February 3, 1913, that an income tax was instituted. Before that, the US federal government funded itself for a century and a half primarily through public land sales, excise taxes, tariffs, and various customs duties. The fact was that the federal government did not need as much money back in the 18th and 19th centuries because the bulk of governing was from the state governments.

For some very odd reason, Americans are not thrilled with paying income taxes; likewise, the federal government is rather emphatic that we do. It speaks volumes that the mobster Al Capone could not be arrested for murder or extortion, but he was for tax evasion!

There are probably few things in life more chilling for the average American than to be notified of a tax return audit. And to make that chill shiver for many more folks, the recently passed Inflation Reduction Act of 2022 has allotted some $300 billion to IRS enforcement, including surveillance upgrades and increased auditing. The plan is to add 87,000 (!) new agents to the IRS.

If the goal of the IRS is to get the most money it is ‘entitled’ to, it makes sense to go after those with the most money. And this happens to be true; the highest percentage of audits are those filing with $10 million or more. However, lower-income folks are lower-hanging fruit, and by the IRS’s audit data, Humphreys County, Mississippi, is the most frequently audited county in the United States. This rural county is mostly known for catfish farming and has an average income of $18,000 per resident, making it one of the poorest counties in the United States. It turns out that this is not an anomaly, as many poor counties around the country are highly audited.

Back in 2019, IRS Commissioner Charles Rettig testified before Congress and was asked about the disproportionate targeting of poorer Americans for audit scrutiny. His answer was chilling, “This is the most efficient use of available IRS examination resources.” (Translation: “Easy pickings.”) Commissioner Retting is now changing his tune and sent a letter to the Senate at the beginning of August to assure them that the new influx of agents expected with the Inflation Reduction Act was not aiming low. “These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans.… Audit rates will not rise relative to recent years for households making under $400,000.” (Translation: “Trust us, we will keep doing what we have been doing, just be doing more of it.”)

Through my leadership development work, I have known some folks in the IRS, and they have divulged to me probably more than they should have. Here is how the system basically works. All tax returns are run through the computer, and if your returns are fairly routine or fundamentally similar to your previous returns, all is good. If there is something that stands out from previous filings, say you got some extra money or had an unusually high deduction for something, this will get popped out, and a real human being has to look at it. If there is documentation, and it looks kosher, it gets filed away as ‘no harm, no foul.’. If there is an anomaly, and it does not pass the smell test, it gets put aside into the “needs to be checked out” file. Only a small fraction of these actually get audited for the simple reason that there are so many. This is probably what has sparked the need for an increase in agents.

The IRS representative may say that an audit is “routine,” but all audits have something that sparked them. I knew a sweet, kind woman some years ago who was hooked on television evangelists, and every time they asked for money (which was ALL the time), she would whip out her checkbook. She got audited, even with statements verifying the giving, because the IRS could not believe someone would give over half of the relatively small income to these television religious guys. She was cleared, and thankfully the experience caused her to stop giving to Oral, Jimmy, and Tammy Fae.

In general, everyone who does their own taxes should especially cross their T’s and dot their I’s. Make sure you have documentation for anything and everything you list as income or deduction. Don’t listen to others who tell you that you can deduct this or that — make sure it is in the IRS code (www.irs.gov). This is especially true when you are using your home or car for business. Using separate bank accounts and credit cards for your income and expenses is best.

Dave Barry, the humorist, gives us the best advice when we think about the Internal Revenue Service. “We’ll try to cooperate fully with the IRS because, as citizens, we feel a strong patriotic duty not to go to jail.”