Paying income taxes is part of life in the United States. Even those who only have part-time jobs are generally required to contribute to federal and state tax programs. Once a year, taxpayers need to file a tax return reporting their income and household circumstances to the Internal Revenue Service (IRS).
In cases where there is reason to believe that someone has not honestly disclosed their finances or fully paid their taxes, the IRS may conduct an audit. A tax controversy could even potentially lead to criminal charges. Some people are more likely than others to face tax investigations and accusations of underpayment. The three groups below are among the most at risk for tax issues.
Those who claim the Earned Income Tax Credit
Given that income tax is largely a reflection of how much someone earns, those with more income typically have higher obligations. Although those with lower incomes have fewer tax obligations, they can qualify for certain tax credits, like the Earned Income Tax Credit (EITC) that draw more scrutiny from the IRS. Many audits each year specifically focus on those claiming the EITC.
Self-employed people and business owners
The text requirements for those who run their own companies and who don’t have employers making contributions on their behalf are different than the tax responsibilities of those who have a standard employment arrangement with a business. The taxes contributed by the self-employed professional will be higher than the taxes required from someone employed by a company, and they also have to make estimated quarterly payments. Errors and underpayments and very easily trigger audits and other challenges for self-employed individuals.
Those who have received a recent windfall
Perhaps someone’s parent recently died, and they may be subject to capital gains taxes as a result. Maybe they visited a casino on vacation and one far more than they expected. Those who have unusual and large streams of revenue unexpectedly added one year can very easily make mistakes regarding reporting and paying taxes on those acquired resources.
Not only can the IRS cause a lot of stress for someone by auditing them, but the organization can also impose financial obligations on individuals and possibly even seek their prosecution. Recognizing when tax controversies and legal challenges are more likely can help people properly prioritize fulfilling their tax obligations and to seek legal guidance when they need it.