In May 2019, Hernando, a resident of California, has his 2017 Federal income tax return audited by the IRS.

In May 2019, Hernando, a resident of California, has his 2017 Federal income tax return audited by the IRS. An assessment of additional tax is made because he had inadvertently omitted some rental income. In October 2019, California audits his state return for the same year. Explain the coincidence.

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Explanation of coincidence:

Tax return filed by taxpayer is selected for audit by IRS for various reasons. Similarly, state can select the tax return based on the income determination used for federal income tax purposes. As a result, any assessment by IRS during audit of federal tax return filed by taxpayer always come into the notice of state tax authorities.

In the said case, Taxpayer inadvertently omitted to show some rental income in the return of tax year 2017 as a result of which IRS has assessed an additional tax liability on the taxpayer during the audit of 2017 federal income tax return in 2019. Based on such findings California state has audited the state income tax return of same tax year as the property taxes are levied by State and not by Federal tax authority.

Tax return filed by taxpayer is selected for audit by IRS for various reasons.

Junaid answered 2 years ago

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