It would be easy to assume the IRS spends most of their time carefully looking over the taxes of highly paid individuals. After all, the more money that exists in accounts and investments, the more complex the assets can become. It makes sense it would be easier for mistakes to happen.
However, the IRS does not just focus on those making six figures. They work to audit a variety of income levels, which includes people living with low-income levels. These people often qualify for The Earned Income Tax Credit (EITC or EIC), which reduces the amount of taxes owed and often provides a refund.
However, in 2015 The Protecting Americans from Tax Hikes (PATH) Act determined that those on EITC are more likely to have their refund held. This means the helpful, timely aid of EITC can be lost if an audit takes place.
Qualifying for EITC
Individuals will receive a letter from the IRS stating they can claim EITC for the tax year. The process requires thorough documentation to verify your income and claim. Being approved for EITC can be impacted by:
- Incorrect or missing information
- The age of your dependent children
- Errors in the math of your forms
Generally, there are useful resources available to ensure you submit everything correctly, and the IRS will work with you to amend any mistakes that may have occurred during the process. Unfortunately, an audit can stop this process in its tracks.
EITC problems that may arise during an audit
Many individuals and families depend heavily on their EITC to make ends meet. When they are audited, the entire process is delayed, sometimes for months at a time. This can be extremely stressful when people depended on their tax return or credits to cover bills and expected costs.
Additionally, the time required to support the IRS during an audit can be a hindrance. Gathering all the information the IRS requests within 30 days can become difficult when people are working and caring for children. This documentation gathering process can require everything from medical records to income stubs to childcare receipts.
In some cases, the IRS may need six months to review your audit and determine your credit or tax return. From the review process, it can take over a year to determine the refund and send it to the taxpayer. Even with an attorney, this process can be arduous.
Avoiding audit issues – as much as you possibly can
According to the Fiscal Year 2017 Enforcement and Service Results, the IRS audited 381,000 people who received EITC. This number made up 36% of the total audits they conducted. As we look at the upcoming tax season: this number may increase.
At Goldburd McCone LLP, we offer helpful tax audit resources on our blog and can provide a friendly ear to your concerns about a potential audit. During a free case evaluation, we can offer sound legal advice on how to proceed with your unique situation.