After 30 years of gathering dust at the IRS, why are financial probes in the spotlight? There are several possible reasons. The first is that, in its effort to collect revenue, the IRS has simply rounded up the usual suspects, and unreported income usually garners a first-place spot on that list.
Heaney makes the case that standardizing the financial probe procedures for auditors and placing new emphasis on financial probes in the training manuals should help the IRS become more efficient.
Another reason for economic reality audits is the tremendous growth of small business. There seems to be a natural fear on the part of the IRS that once you hang out your shingle, you cease to pay attention to the tax code.
Pyrek confirms that a lot of noncompliance is related to inexperienced start-up businesses. "There's an education gap for people starting out on their own," he says. "It's a big job to keep track of what's required in terms of quarterly filings and Social Security tax, for example. You almost have to become a tax accountant in the process of opening a business."
But lest you think the IRS will turn its collective head and look the other way just because you appear bewildered, Pyrek adds, "A lot of unreported income is on purpose because of cash transactions. People don't think they have to report all this income. Those are the people we're looking for."