Audit Disclosing Irs Reason
Q.This is a sincere question, not a tax-protestor question: I have been reading newspaper accounts recently of the IRS's new tactics of asking a lot of questions concerning lifestyle during an audit. These questions are intended to determine if a person is living above his declared income, and is perhaps not revealing all his income. I wonder to know a reason that a taxpayer have to tell them concerning lifestyle? For example, I can understand having to explain the purchase of a car if I deduct vehicle expenses for a business, or a trip to France if I claim it as a travel expense. But if I buy an expensive car (don't I wish!) or travel abroad, as personal activities, Are I disclosing these activities if asked? If so, what is their basis for the authority to ask these questions.
A.I don't have any good answer, except that IRS considers it within their authority to ask any questions which might lead to undisclosed income. For example, if you buy a 50,000 car for cash and take a 20,000 trip and your reported income is only $20,000, IRS might be curious about where that extra money came from. If you can show withdrawals from a bank account, loans or gifts,etc, no problem. That's how they got Al Capone, remember?
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