It is a generally established standard that the IRS itself is audited to fully certify it is following all the rules, regulations, and governing laws effectively and efficiently. This strategy should be welcomed by most businesses in order to make certain nothing is neglected or overlooked. But when it is the IRS, the outcome of resolving an audit issue can have continuous or spreading effects.

The Office of the Treasury General for Tax Administration is in charge of auditing the IRS and it released its 2020 investigation Annual Audit, identifying the entire audit items that need an amendment. As the agency works its way through the plan, modifications should be expected in the way your taxes handled.
Here are a few audit discoveries that may lead to your additional work in future tax seasons. It’s out of harm’s way to say that the audit issues of most interest are those that add to the amount of taxes you pay.

Early Distributions from IRAs
The IRS is supposed to make it simpler to offer relief, but this audit item in reality means the opposite. The IRS already has a system in place for relieving certain taxpayers from penalties for taking early distributions from their IRAs. The audit item says the agency needs to take a nearer look at its Automated Underreporter Program.

The major worry is that the program is not identifying and working the most effective (for the federal government) cases where taxpayers may owe an extra 10% tax on those early withdrawals. It seems the IRS might be missing out on some taxes because of an ineffective process.
If you took distributions from your IRA early, you and your tax professional might want to re-examine the categories of those who receive relief, just to make sure there is a perfect fit. Otherwise, you may owe more.

Virtual Currency Exchange Audits
Virtual currency such as Bitcoin, Ethereum and other digital money are being studied closely and seriously. Audit number 201830034: virtual currency exchange audits involve assessment of the IRS efforts to make sure of accurate reporting of virtual currency transactions as required by the US Tax Code (distinctively, Titles 26 and 31).
A very important issue with virtual currency and taxes is the lack of understanding of how the federal government’s definition of a virtual currency. Just to bring to your notice, it isn’t seen as the same as cash. Instead, it is treated more like stocks. Whenever you spend or exchange virtual currency, you must ensure to keep a record of any profit or loss created during each transaction.

The IRS is sending what are classified as “educational letters” to taxpayers that it deems may not have reported their transactions or else misreported them. Soon, the agency will intensify its enforcement efforts in this space, which may include criminal prosecutions.

Tracking profit and loss becomes uneasy if you do not have the accurate record of the price which your virtual currency was purchased and a well-defined valuation of each article purchased with the virtual currency.
If you have doubts of any form, go back and carefully go through your files now. If the existing IRS process is found deficient, a new process could capture data that reveals virtual currency users owe the feds more than anticipated. Check the IRS Notice 2014-21. It clearly explains that virtual currency is property, not currency in the eyes of the US government.

Precision of Taxpayer Entries on Tax Return Lines Termed as “Other”
It appears that the Deputy Inspector General thinks the category labeled “other” on various tax forms is due for misuse. Audit number 202040002 focuses on determining whether letting taxpayers (or their tax experts) enter deductions or tax credits without defining them may result in mistaken or fraudulent refunds.

Effectiveness of the Earned Income Tax Credit Examination Approach
Audit number 201930012 is to determine the effectiveness of the IRS’s Earned Income Tax Credit Examination Strategy since it appears that the Office of the Treasury General thinks they may be swimming in earned income tax credit fraud.
Earned Income Tax Credit is a program for low to moderate-income workers. The IRS must be commended for supplying tools and guidance to make it easy to determine who is eligible for the tax credit. Still, there may be those who claimed it that should not have. Be sure that you aren’t one of them.

High-Income/High-Wealth Non-filer Approach
After picking on the few people, the audit plan turns its awareness to the Big Fish of tax avoidance. Audit numbers; 201830036 and 201830037 both task the IRS to verify that they are effectively addressing high-income/high-wealth non-filers and that the new non-filer strategy and other procedures include these individuals or entities.
Those who earn a huge amount of money yet do not file taxes, or if they do file but don’t pay, are a definite concern of the IRS. The Treasury General wants to know whether the agency is putting in enough effort and doing it effectively. Who knows how much is lost out to these rich people?
Certainly, rich is a relative term. The top tax rate of 37% is applied to individuals with incomes of a little above half a million or couples with a bit above $600,000. The 32% rate (third from the top) relates to individuals earning $160,725 to $204,199 and couples earning $321,450 to $408,199.

Treatment of Large Refunds under IRC Section 6405 Threshold
If you are a follower of the Peter Hendrickson school of tax non-compliance, you may come under this item (audit number 202030002), which increased IRS examination. The US Government isn’t taking the Cracking the Code author’s objectives lying down.

Data that reveals assessments could be made more effective means that more fraudulent refunds could be exposed. If you have been a compliant taxpayer, no harm, no foul. If you have been trying to look for ways to get a bigger refund and colored outside the lines, you may be in serious trouble.

The fiscal year 2020 list of planned audits is extensive. Some of it addresses vital elements of taxpayer privacy and security, a paramount concern of the IRS. However, much of it has to do with adopting ways to tighten up enforcement of tax law. You can almost feel sorry for the federal taxing agency. It’s had its budget cut down like everything else. Yet, the employees are expected to administer and enforce the changes in tax law competently.

Finally, for 2020, you and your tax expert must ensure to keep an eye on the outcome of these audits.