Ever since I took over and been filing my own tax returns, I’ve received letter audits. I receive a new letter 2-3 times a year and correspond with the IRA about 8x per year, on average. I know because I have been keeping track of this ever since.
I don’t mind this, I win most of these audit letters. Surprisingly, I never get a letter saying I overpaid. That is why I file more and more aggressively, year after year. I don’t want to be the IRS’s cash cow.
And if I already know that I will get audited every single tax year, then it’s in my best interest to file as aggressively as possible. What’s the worst case scenario? I end up owing money. As long as I am not trying to commit fraud, I’m perfectly within my right to minimize my taxes.
Audits are audits
A letter audit or a full audit or an in-person audit – all are the same thing on a continuum of audits. Letter audits are just easier to deal with and are the majority of audits which US states and the IRS send out.
They will refer to them as “notices of correction” or “notices of deficiency”. Don’t get it twisted, these are audits. Don’t panic or freak out over an audit. I have friends who tell me that the reason they file “conservatively” is so that they don’t get audited.
What does conservative filing mean? As in, you’re giving up money to the IRS which you shouldn’t?
You will not go to jail because of an audit. You will not lose your house. You will not go bankrupt. The only way that kinda shit happens is if you’re trying to fraud the government. And if that is truly your goal then I recommend getting a very competent tax attorney who knows how to go toe-to-toe with the IRS.
There are plenty of millionaires and billionaires and organizations, such as Kaiser Permanente, which legally fraud the government. I mean come on, how is Kaiser a non-profit organization. Kp.org?! @#$%^ please.
Oregon tax audit letter
I received this letter mid-January 2019 and the bill was for $451 for the 2015 tax season. That’s 4 years ago. It’s okay, I get it, my state’s Department of Revenue is short-staffed. Maybe if they developed better auditing techniques they wouldn’t be 4 years behind.
The problem with auditing a tax document which is 4 years old is that it’s really hard for the consumer to recall details and have access to financial documents from that far back. Many online banking transactions only go back 2 years.
The letter arrived from the Department of Revenue so it’s a state tax audit, not a federal or IRS tax audit. This makes no difference to me, taxes are taxes.
Details of the tax audit
So, my bill is $451. Let’s see if this is legitimate or if I will contest this. I’m writing this post as I’m reading this letter for the first time.
There is a statement here which says that if I don’t pay it within 30 days then I owe a 5% penalty. Bullshit. You can request an extension if you want. Don’t worry about the tax penalty. It’s been 4 years, fool! All of a sudden you’re a rush?!
The next section is the explanation. It’s anemic at best. They basically have 13 tax categories which they have listed and the corresponding financial values divided into 3 columns. Column 1 is “per return” and column 2 is “per audit” and column 3 is “adjustment”.
Basically, they are saying that what they calculated is different from what you calculated. The tax difference is the $451 bill which they sent me. Unfortunately, they provide you with no details. So, this isn’t an explanation, this is just them sending you a fucking bill.
The “explanation” goes further to say that they made this adjustment because of an audit report the state received from the IRS. Good, finally, something to go off of. So, let me go look through my audit letters from the IRS and see what I find.
Here we go, found it. I got audited in 2017 by the IRS for my 2015 return where they claimed that I owed $6,400. I wrote them back and explained why they were wrong. However, in looking at the numbers, I did end up owing $1,600 because of a 1099 which I never receive and failed to include.
So now that I have that document, yes, I did have a gross income correction of around $5k. Since Oregon state income taxes are 9%, I would need to pay Oregon an extra ~$500 – or $451, to be exact.
Making the payment
If I agree with this audit letter – which I do – then all I have to do is send in my payment. I could have avoided this letter if I sent Oregon their share of the IRS audit I had in 2017.
But what’s my incentive to do so? Essentially, I got a 2-year free loan for $451. I will be paying this $451 with 2019 dollars even though it’s from 2015. It is unfair, I get that. But this isn’t the first time I’ve been audited.
My very last audit from Oregon was for money I paid to California because one of my consulting clients pays me in California. Oregon wanted to double tax me. Hell to the no!
The one before that was an audit letter from Oregon saying I owed $25k. I ended up paying $0 after I reviewed their letter. So, I don’t feel bad dragging this $451 out for 4 years.
I will go online now and make the payment. Cheers.