Accounting Philosophically: "I'm Really Sorry"

In a recent conversation with a friend, we were discussing and lamenting the "state of the world". With news about Madoff, Blagojavich, joblessness, and multiple reports of shootings in various parts of the country, it was pretty easy to feel depressed and worried. But, my friend tends to be a philosopher, so he brought this part of our conversation to an end with the expression, "Well, I guess that if we tried to separate the saints from the sinners, we'd probably do well to come up with Mother Theresa."

Now, what does this have to do with accounting? Frankly, I have no idea.

BUT, the next part of our conversation focused on April 15 and, of course, income taxes - and continuing our lamentations, we couldn't help but wonder just how many "saints" out there would better fit into the "sinner" category when it comes to submitting their 1040s.

Recent studies seem to indicate that if there is a single motivation for taxpayers to at least try to remain in the "saint" category, it is the fear of an audit. This, in turn, led us to talk about any "good news/bad news" associated with an audit.

First, the "good news". This is the fact that, on an annual basis, only about 1% of the tax-paying population is audited. Of course, if we assume approximately 200 million taxpayers, this means about two million people will be notified. On the other hand, statistically speaking, the chance of an audit is pretty small.

Now, the "bad news". This is fundamentally that if you receive an audit notice, you are basically "guilty until proven innocent". This is generally the approach typically taken by the IRS, but this is mainly because the audit was provoked by the submission of an "iffy" 1040 in the first place - and if we really think about it, the auditors are really just asking for more information. So, the "bad news" may not be so bad if you have the information. On the other hand, a lack of supporting information could definitely be "bad news". This led my friend to make another of his observations. This was, "If you are audited, and don't have the supporting information you need, then IRS will probably stand for, "I'm Really Sorry.".

Interesting, huh? Let me know what your thoughts: Email me at william.vasquez@taxtalkonline.com

Accounting Philosophically is strictly a tongue-in-cheek observation and is not intended to reflect any political affiliation, lobbying cause, or other similar position