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How Scared Should I Be?

How Scared Should I Be of Getting Audited by the IRS?

Between death and taxes, death might be the more pleasant of life's two certainties.
April 12, 2016, 1:30pm
Image by Natalie Moreno

In the column "How Scared Should I Be?" VICE staff writer and generalized anxiety disorder sufferer Mike Pearl seeks to quantify the scariness of the world he lives in. We hope it helps you to more wisely allocate that most precious of natural resources: your fear.

When I was a kid, hearing grown-ups freak out every April about having to do their taxes was just another intrusive droning sound from the adult world that I hated. Then I became an adult and realized that now I make that particular droning sound just as much as, if not more, than the horrible adults from my past.

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But like most people of the millennial generation, I don't have any major investments, and I haven't had any huge financial windfalls, so I'm going to get a refund, and my taxes aren't even very complicated. In short, I'm not freaking out about having to pay my taxes—I've been paying them all year. What I'm actually losing my mind over is having to get all my forms in one place, and then put the right numbers in the right boxes, and add it all up correctly or else!

The question is, or else what? I vaguely know that if I get my calculations wrong, some shadowy figure in a suit might show up and make my life hell via a nightmarish process called an audit, and that some people wind up in jail for this sort of thing. But how likely is that for someone like me? And more importantly, is it really that bad?

According to Michael Graetz, a professor of tax law at Columbia University, it really is that bad. He pointed me to a 2009 poll in which Americans said they'd rather have root canal surgery than an IRS audit. "I've had both," Graetz told me, "and I agree with the people who answer the polls that way."

To be clear, a root canal is the process in which a dentist uses a drill to dig out the infected meat of your tooth all the way down to the very bottom, and it looks like this:

So why is a process in which an IRS agent shows up and just looks through your paperwork worse than the horrifying physical torture pictured above?

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According to Graetz, part of the problem is "over-aggressive" auditors trying to make people give the government money it truly doesn't deserve. One agent who audited Graetz was "overreaching," Graetz claimed, and his recollection of an exchange of words from that audit paints a vivid, painful picture of bloated bureaucracy at its worst.

Graetz had dutifully proffered receipts and documentation, but the agent was demanding something called contemporaneous substantiation. "He padded the internal revenue code and said 'It's in the book. You need to follow this book,'" Graetz said. He demanded to see such a requirement in writing, but when the agent flipped open his IRS tome and showed him a section on "contemporaneous substantiation," it only applied in cases of travel and entertainment. Graetz told the agent no travel or entertainment had been involved, so everything should be all clear. But incredibly, Graetz says the agent replied, "'well it says travel and entertainment, but it means everything.'"

"And that was when I was on the verge of mayhem," Graetz said.

In addition to the four audits Graetz has endured, he's also experienced the audits of others as a tax lawyer, and in his estimation, this kind of overreach or over-aggression is pretty common. "A third to a half [of agents] are in the category of people you'd like to avoid," Graetz said, although he hastened to add that he'd only met a small sample of the IRS auditors.

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As for my chances of actually triggering an audit, they're reasonably low. According to the IRS Data Book from 2014, the most recent year with complete numbers, only 0.86 percent of tax filings resulted in an audit. Even better, for people like me, with annual incomes between $25,000 and $99,999, the percentage is closer to 0.5 percent, or one in every 200 taxpayers.

But I probably shouldn't get too comfortable. To put that in perspective, those were also my odds of being born a redhead—which is pretty common. And having red hair lasts a lifetime, while I have to roll the 200-sided die of a tax audit over again every single year.

According to Graetz, if I make a math mistake on a form, I'll have to deal with it, but I probably won't have an auditor show up at my door. "They pick up 100 percent of those and just send you a letter," he said. If the error caused me to pay less than I should have, he added, "there are some penalties, depending on how big the understatement of tax is," and I'll also have to pay interest.

But what if the error is truly outrageous, like the time I was rushing to get through Turbo Tax and I accidentally reported a $30,000 cell phone bill? I caught it before I filed, but I still had this gut-wrenching feeling that I'd narrowly avoided getting dragged off to jail for cooking the books to score a massive undeserved refund.

Graetz claimed that a mistake as idiotic as that could never land me in jail. "If you just make mistakes, or don't quite understand the form, or have difficulty knowing what the rules are, that's not criminal," he said, explaining that only willful lies could be construed as criminal.

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But the thought of my mistake being misconstrued as fraud still leaves my stomach in knots. I can't help but think of former Pittsburgh Steelers wide-receiver Plaxico Burress and his conviction for tax fraud earlier this year. Burress reportedly tried to file his returns, but the payment didn't go through. Then the IRS sent him a letter, and they never heard from him, so they arrested him. In Burress' case, it definitely seems conceivable that he was just being an idiot, not deliberately breaking the law. Even the judge who sentenced him praised his otherwise "law-abiding life."

After all, this is a guy who managed to accidentally shoot himself in the leg. If they thought he was an arch criminal, how can I possibly be safe?

Final Verdict: How Scared Should I Be of the IRS?

4/5: Pissing Myself

Follow Mike Pearl on Twitter.