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For whatever reason, a number of myths and misconceptions continue to abound about the IRS. Some of those myths may come from taxpayers who, after having serious problems with this government agency, disseminate their own theories as to why their problem came about, even if such is often not based on facts. Another source of misconceptions may be the constantly changing laws that govern our revenue taxing system.
Whatever the source, here are some of those myths:
The IRS’ prosecution department falls under our judicial system’s agenda-ergo, you are innocent until the IRS proves your guilt.
Actually, the IRS in some ways falls outside our judicial system’s modus operandi. How many government agencies, for example, do you know that can confiscate your property or seize your income to compensate for what you may owe that agency? Somewhat because of the special nature of their responsibilities, the IRS is given legal discretion and powers not given to other agencies. While you may indeed appeal their decisions to federal courts, the IRS often acts as if it is not obligated to prove your guilt, as one would expect; in fact, sometimes, taxpayers confronted by the IRS are made to feel as if they have to prove their innocence, whereas most criminal courts have to prove your guilt.
If you are innocent, you should answer all the question posed by the IRS and tell them everything you think they should know about the case in question.
Actually, because everything you say to the IRS may be held against you, you should not answer a single question until and unless you obtain legal representation. Another thing you should never do is volunteer information the IRS did not request. Some people make their case worse by saying too much or by answering questions inappropriately.
Only tax cheats are pursued and punished by the IRS.
The truth is that some people have been harassed, fined, or imprisoned in spite of the fact that the case the IRS had against them was weak (under criminal law standards) or, at best, circumstantial. Especially if you take them on without legal representation, the IRS stands a very good chance of winning against you, even if you are 100% innocent. Unless, as has been stated, you can prove that you are innocent, which is often not easy to do, especially if important records are missing, other people testify (to save their rear end) against you, or there are simply too many unexplained discrepancies in your filings (which can easily be the result of poorly-managed financial records, not necessarily criminal intent).
If someone else did your taxes, you cannot possibly get in trouble with the IRS.
Some people think that just because they paid a third party to do their taxes that that automatically exonerates them in the eyes of the IRS. That is 100% not true if the person who does your taxes (often to keep him or herself out of hot water) tells the IRS that you said or did something you never authorized. For the record, as far as the IRS is concerned, you are responsible for your filings, even if someone else assisted you. If mistakes are found, make sure that you can either explain them or that the person who did your taxes is honest and professional enough to take responsibility for them.
People who do your taxes are always liable for their workmanship.
In a perfect world, that would indeed be the norm, but, in the US, that is not always the case. In theory, every number (except those derived from mathematical computations) provided in tax filings came from you, not the person who filled out your returns. If the tax preparer you hired makes a mistake, you may be confronted because of that mistake. Because of this reason, you need to hire people who are not only highly qualified to fill out your returns correctly but also honest enough to take responsibility for their mistakes, if they make any. Tax preparers do face some liability but, as far as the IRS is concerned, you are responsible for your returns, regardless of who fills them out. If that were not so, deliberate tax cheaters would always blame, with impunity, their discrepancies on tax preparers.
You can easily get away with not disclosing tips made at work.
People like waiters/waitresses, bellhops, beauticians, cab drivers, etc., misguided by the idea that the IRS cannot possibly know how much they actually received in tips, often underreport (if they report them at all) what they received in tips. While the IRS indeed cannot possibly keep tabs on how much exactly anyone received in tips, the fact is that, by not reporting tips, people are taking a huge, unnecessary risk. If you wait on tables at a local restaurant, for example, and the rest of the waiting staff reported that they received, on average, $200 in tips for last month, but you received only $30, there is a chance that you may be contacted by the IRS about this discrepancy. The IRS does not have to prove exact amounts, just that what you reported is suspiciously low. Even a small amount that is not reported can bring about criminal prosecution and your legal costs (to defend yourself) may easily exceed what you allegedly stole from Uncle Sam.
You don’t have to file tax returns if you know you won’t owe anything or if you think that the government will owe you a refund.
You are required to file a return every year if you earned reportable income in that year. Even if the government will owe you a refund, the IRS expects you to file a return.
If you have not filed a return for a number of years, the best thing to do is to not file and to keep a low profile.
Actually, many people who get in trouble with the IRS fall into their self-created holes because they made this crucial mistake. The IRS is usually willing to work with people who come forward and admit their mistakes, if they are willing to make amends. In most cases, affordable payment plans can be worked out to fit just about any budget. If you force the IRS to come looking for you, though, that’s when things can get ugly. If you are afraid to face the IRS alone, by all means, hire legal or financial experts (some of whom, working for nonprofits or the government, can be obtained at no cost or at a reduced rate) to help you get back on good terms with the IRS, but, whatever you do, don’t let the matter go unresolved much longer.
If you owe a lot to the IRS, you are done for-just don’t let the IRS find you.
Nothing could be farther from the truth. First of all, the amount you owe will not necessarily save you (if it is, relatively speaking, miniscule) or get you hanged (if it is exorbitant). If you come forth voluntarily (assuming you did not commit a crime which motivated you not to file-in which case, you should definitely get legal counsel before contacting the IRS), in most cases, you can negotiate your way out of trouble, provided that you are willing to pay back what you owe.
Everyone the IRS sends to jail or punishes with fines is guilty of very serious tax crimes.
Unfortunately, some innocent people have been known to go to jail or to pay heavy fines simply because they could not prove their innocence. Also, as has been stated already, the amount of money you owe to the IRS is not necessarily the key issue, nor is it whether the crime in question is “small” or “very serious.” The IRS considers all tax discrepancies and failures to abide by tax laws to be of a “serious” nature and can result in imprisonment and fines. For that reason, regardless of who files your taxes, you should make sure that you not only file every year on time but that everything that is reported in your returns is accurate, complete and up-to-date.