The chance of an individual being audited by the IRS is at the lowest rate in a decade, with less than 1% of returns audited: about 1.2 million returns in 2014, a drop of nearly 330,000 from 2010. Reasons cited are cuts to funding for the IRS and a commensurate drop in the number of agents.
So, does that actually mean less scrutiny of tax returns overall?
First, it should be noted that there are 4 main types of audits: the Correspondence Audit, in which the IRS communicates and asks for more information about a return through the mail; the Office Audit, in which the taxpayer is ‘invited’ to an IRS field office to supply and review specified information; the dreaded Field Audit, in which the IRS agent comes to you, likely looking for something specific; and finally, the Random Audit, in which selected returns are randomly selected and evaluated to establish and examine overall trends, etc.
What receives much less attention is the CP 2000 Notice. Chances are, unless you’ve received one, you’ve never heard of it, or that 4.7 million CP 2000 cases were settled by the IRS in fiscal year 2011—about 4 times as many cases as audits
So what exactly is a CP 2000?
It’s not a bill, but rather a proposal, delivered to the taxpayer in the form of a letter. The proposal is to adjust the amount of tax you actually owe. Sometimes the proposal offers a refund of tax paid, but more often it suggests that the taxpayer might possibly owe some more tax to the government, plus, naturally, penalties and interest.
You may agree with the information in the CP 2000 letter, disagree with the information, or partly agree and partly disagree. In any case, you’ll have 30 days to respond, and if you agree you owe, to pay.
Bob Meighan, VP of Intuit’s Turbo Tax, cites the growing technology being used in the computer systems at the IRS to address potential revenue shortfalls. The IRS themselves, famous for the secrecy surrounding their taxpayer return selection process, admit the growing importance of electronic records.
With that in mind, knowing the other name for a CP 2000 letter becomes very interesting: an AUR notice, or Automated UnderReporter Notice. The name itself spells it out: these notices are generated automatically by IRS computers when their systematic examination of vast amounts of data determines that something… doesn’t… quite… match.
So for all practical purposes, don’t worry about an audit. That’s old school. The new IRS may have less funding, and less agents. But it has something eminently more effective: powerful large scale document management software to automatically identify and contacts taxpayers likely to owe.
And just how effective is this use of document management technology? Last year, the automated program generated over 5.9 billion in revenues to the IRS.
What works for the government can work for your business.
5i Solutions, Inc. understands how powerful—and profitable– document management software can be. We dedicate our efforts to giving your business the tools needed to analyze, understand, and monetize all your crucial data, all in one place, available from anywhere.
5i Solutions, Inc. One single point of access. One singular solution.