Tax Return Audits

The Latest Feel Good Story Involving the IRS

Thumbnail image for IRS_logo-thumb-150x140.jpgWere you concerned that the IRS wasn’t auditing enough poor people? Well here’s a story that will put those fears to rest: The IRS audited a woman in Seattle who made less than $19,000 a year because she was too poor.
Rachel Porcaro was summoned to the IRS after being flagged for an audit. She was told that based on what she was earning, she couldn’t possibly be supporting herself and her two sons:

“They showed us a spreadsheet of incomes in the Seattle area,” says Dante Driver, an accountant at Seattle’s G.A. Michael and Co. “The auditor said, ‘You made eighteen thousand, and our data show a family of three needs at least thirty-six thousand to get by in Seattle.”
“They thought she must have unreported income. That she was hiding something. Basically they were auditing her for not making enough money.”

Initially, the Service told Ms. Porcaro that she owed the Feds $16,000. When Dante Driver sent a letter to the IRS explaining how he thought the code was being wrongly interpreted, the IRS turned around and audited Ms. Porcaro’s parents:

Rob and his wife, Patty, had to send in house blueprints, bank statements, old utility bills. Rachel was asked to prove her children were hers, as well as document the money she’d spent on her children’s clothes, health care and so on.
They racked up $10,000 in accountant bills — $8,000 of which Driver is trying to recover from the IRS.
In the end, the parents were cleared. The IRS also backed off trying to reclaim Rachel’s earned income tax credit.

Ultimately, Ms. Pacaro had to pay over $1,400 in back taxes, penalties, and interest because she couldn’t provide enough receipts to document that she could claim her sons as dependents. Her parents are also not allowed to claim them as dependents, so for tax purposes, the two boys simply don’t exist.
Even if you’re a stickler for tax law, the time and expense of this audit hardly seems worth $1,400. The IRS soldiers likely would claim that they were just following orders but the Service was mum on this story. You can safely bet they won’t be apologizing either. The moral seems to be, regardless of your income, keep those receipts people. Yeesh.
$10 an hour with 2 kids? IRS pounces [Seattle Times/Danny Westneat via The Consumerist]