The Internal Revenue Service (IRS) audit is an expansive subject. One needs to know a few of the basics of the U.S. history of the income tax to gain perspective on IRS audits. The history of income taxation in the United States is nearly as old as the United States itself. George Washington’s administration levied the first taxes based on income. But there were three later major developments in the income tax law in the United States that made it a permanent fixture in U.S. political, economic, and legal culture.
The first major development occurred when Congress created the Office of the Commissioner of Revenue in 1862. The second major development came after the Civil War and various financial and economic crises of the late nineteenth century with the Sixteenth Amendment of the U.S. Constitution, ratified in 1913. This amendment states that “The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” The income tax was permanently established shortly thereafter. The third major development came in the middle of World War II. In 1942, Congress enacted a law that required employees to withhold taxes owed by their employees from the employees’ wages and salaries.
Besides mandated withholding, Congress provided the IRS with an extensive array of powers to persuade the American people to meet their tax obligations. Tax returns must be:
* Paid on time
The IRS has a variety of ways to choose which returns to audit, but only a relatively small number of individual taxpayers are actually selected for audits.
The prospect of an Internal Revenue Service (IRS) audit can create a good deal of anxiety in any taxpayer. An audit is a type of investigation used to determine whether the information provided to the government on the information/tax return is accurate. The audit is used in turn to determine whether the taxpayer paid the proper amount of tax. Audits are also used to uncover fraud. The taxpayer bears the burden of proof during an audit. That is, the taxpayer must prove to the IRS that the information the taxpayer reported on the income tax return is true and correct.
Whether taxpayers need outside assistance such as an accountants or an attorneys when they are faced with an audit depends on their particular circumstances. If their tax matters are fairly simple, they may be able to handle the audit entirely on their own. But if the tax issues are complex or if they do not fully understand taxes, it is a good idea for them to hire a professional to assist them.