In: Finance
Daze filed his personal income tax for 2016 on May 4, 2017. He did not have any reasonable cause for delinquent tax filing. He also inadvertently left out his bonus income $20,000 from reporting on his tax return. His tax return without such bonus income shows $100,000 gross income.
(1) The IRS initiated its audit on Daze’s 2016 tax return on June 3, 2020. Does the IRS have authority to audit and possibly litigate Daze’s tax return on the omission of the bonus income?
(2) Answer only one of the following two. i. If so, why? ii. If not, is there any circumstance under which the IRS would be authorized to conduct an audit?
YES , IRS HAVE AUTHORITY TO AUDIT AND POSSIBILY LITIGATE DAZE'S TAX RETURN ON THE OMMISSION OF THE BONUS INCOME.
The IRS is responsible for enforcing the INTERNAL REVENUE CODE (U.S.C.A. tit. 26), which codifies all U.S. tax laws. Basic IRS activities include serving and educating taxpayers; determining, assessing, and collecting taxes; investigating individuals and organizations that violate tax laws; determining PENSION plan qualifications and exempt organization status; and issuing rulings and regulations to supplement the Internal Revenue Code.
Historically, Congress has given the IRS unique and wide-ranging powers for administering the U.S. tax system and enforcing its laws. For example, while in a criminal proceeding the government has the burden to prove that the defendant is guilty BEYOND A REASONABLE DOUBT, in a tax proceeding the burden is on the taxpayer to prove that he or she does not owe the amount claimed by the IRS. The IRS also has the power to impose civil penalties for any of a number of violations of tax law. These penalties are seldom employed, however, and with respect to penalties, the IRS bears the burden of proving that the penalty is justified.
The IRS has the power to collect
large amounts of information on U.S. citizens, companies, and other
institutions. The most obvious example of this power is that each
year all taxpayers must file tax returns containing detailed
financial and personal information. Many organizations are also
required to notify the IRS of any payments they make to
individuals; the IRS receives approximately one billion of these
third-party reports annually. The IRS also has the legal authority
to order banks, employers, and other institutions to provide
information about a taxpayer without having to obtain a warrant
from a judge; other law enforcement agencies, such as the
FEDERAL BUREAU OF INVESTIGATION and local police
forces, must obtain a warrant in such situations.
Another crucial power of the IRS is the ability to withhold taxes
automatically from employee paychecks. The IRS was given this
authority in 1943, when Congress passed legislation requiring
employers to withhold from employees' paychecks the income taxes
owed to the government. This withholding requirement was one of
several actions taken by the government to increase revenue so that
it could meet the huge financial requirements for fighting
WORLD WAR II. Today, automatic withholding
accounts for the majority of tax dollars paid to the government,
with only a small portion sent in with tax returns by April 15, the
IRS annual tax deadline. Automatic withholding is important to the
government because it enables it to receive a steady stream of tax
revenue. It is also useful for enforcing voluntary compliance from
taxpayers because the individual's tax burden seems less onerous
when taxes owed are subtracted from a paycheck before the check is
received.
An IRS audit is a review/examination
of an organization's or individual's accounts and financial
information to ensure information is reported correctly according
to the tax laws and to verify the reported amount of tax is
correct.