For some individuals who have come under audit by the IRS or a California state tax agency, one of their foremost concerns is often, “how much will this cost me?” While the path each tax audit takes is unique, generally speaking, a broader audit that covers more aspects of a taxpayer’s finances have greater potential to uncover tax mistakes and improprieties. Thus, many people who receive a request for information from the IRS are worried that the IRS will find out that they had a side business or other sources of income that were not included on your taxes.
The IRS audit manuals and technique guides specifically address the fact that that auditor may enter into an audit with incomplete knowledge or an incomplete picture regarding the scope of the taxpayer’s business activities. Therefore, the audit guide encourages auditors to ask probing questions related to not only the industry the taxpayer claims he or she is engaged in but also generalized questions about income, tax reporting, and commercial activities.
As for one’s internet business, the IRS is likely to thoroughly explore whether a business exists. Aside from asking questions, the IRS is also likely to engage in old-fashioned research to determine if you are running an e-business. If the agent does determine that you have an online business, the agent may proceed aggressively. This is because the IRS recognizes that:
The potential for omitted income is greater in E-Business, due to the borderless and paperless feature of the organization. Another large segment of E-business transactions is internet bartering.
Thus the agent may come to believe that you are using an online business to evade taxes. Therefore, if you were not forthcoming about an online business, made inconsistent statements about an online business, or believe that you have failed to pay taxes it is important to seek the guidance of a tax lawyer.