The Chairman’s Report June 11, 2021

  • by:
  • Source: FAIRtax
  • 08/30/2021

On its webpage, the IRS explains the types of audits it does.  Here are some of the points:
  • The goal of an IRS audit is to determine whether the taxpayer reported the “substantially correct tax liability”:  
  • The IRS usually does not review the entire return.  Most audits review whether the taxpayer reported all of their income on the return and any other “large, unusual, or questionable” item(s) found on the tax return.
  • If the IRS suspects an obvious error on the return, it may freeze the taxpayer’s refund and audit the return. 
  • Other common sources of audits are computer-selection (based on how much the return has the probability of error), an IRS compliance project (the IRS decides to concentrate audit resources on an issue or type of taxpayer, like a small business), or the taxpayer is selected because they have related transactions to another ongoing audit (like a partner in a partnership).
  • There are three types of audits:   the mail (correspondence), office (“desk”), and field audit.  Both the office and field audits are done face-to-face, with the auditor interviewing the taxpayer and/or their representative.
  • 75% of all audits are mail audits in which the taxpayer needs to answer IRS questions and provide documents to support the accuracy of their filed tax return.  The most common mail audit issue is the earned income tax credit.   The mail audit process produces automated letters which can cause problems (tax assessments, lost appeal rights) for the taxpayer if they do not respond timely.
  • IRS makes changes in 90% of all audits.


We know that a letter from the IRS is never good news.   It is generally a notice of an impending IRS audit, or it is a bill for additional income tax.  Most often, the IRS computer has determined that certain 1099 income, like interest income from a bank, was not reported on your income tax return and the notice is a bill for the unpaid tax on the unreported income.

Sometimes the IRS notice is accurate.  We should have included the income on our tax return.  In that case, we send the additional tax to the IRS, hope that they file it properly and that we don’t get another computer-generated letter demanding payment.

Sometimes the IRS notice is wrong.  We did report the income on our tax return.  In that case, we respond to the notice providing evidence that we did indeed report our income accurately.  This should resolve the issue, but often it doesn’t.  Instead of getting a letter indicating the matter was resolved, we get another notice saying that we owe additional tax and that the IRS will start adding interest and penalties for every month that we don’t pay.

At that point we try in vain to find a telephone number for the IRS where we can reach a real person who will actually talk to us.  That’s not as easy as it sounds.  We eventually give up knowing that the IRS will probably just take the disputed amount from our next refund.  All too often, the disputed amount is only a few hundred dollars, so out of frustration, we just send them a check to get it over with rather than continuing to fight a losing battle.


According to the U.S. Treasury’s American Families Plan Tax Compliance Agenda, the proposal to increase the IRS funding from $12 billion per year to $20 billion per year will “…have certain funding in place to make investments with large fixed costs—like modernizing information technology, improving data analytic approaches, and hiring and training agents dedicated to complex enforcement activities.”

The part of the above quote that will have the most impact on almost all of us is “…modernizing information technology and improving data analytic approaches…”

Many in D.C. have dreamed about the IRS having a computer system that can analyze our tax returns and not just identify unreported 1099 income, but also flag returns on which the taxpayer has exaggerated deductions, claimed credits to which they are not entitled or underreported other income.

The additional funding will presumably allow the IRS to purchase more powerful computers and to develop better programs that use more advanced artificial intelligence (AI).  Their hope is that this more sophisticated software can detect more “presumed tax cheaters” instead of just catching people who failed to report some of their income.

I got a firsthand look at how a tax collecting authority can use this kind of AI courtesy of the California Franchise Tax Board (FTB).  This is the agency that administers and enforces California’s state income tax.
In late fall of 2006, my family moved from California to Florida.  My wife and I obtained Florida driver’s licenses and registered to vote in Florida in 2007.  Starting in 2007, we filed our federal income tax returns from Florida because that was where we lived.

We filed California non-resident returns for a couple of years because we continued to receive some California based income.  However, after 2008, all of our income came from sources in Florida.  Consequently, we stopped filing California returns at that point.

In 2019, I received a notice that California was going to file a tax lien against me for $12,000 of unpaid California state income taxes for the year 2011 based on $150,000 of income.  With penalties and interest this amount had grown to $20,000.  Few things affect your credit or ability to get financing more than a $20,000 income tax lien.  Also, the IRS can always go after your other assets and seize bank accounts or even try to force the sale of your home—all to pay off a tax lien that is not correct.

Since we were not in California in 2011 and I was practicing law in Florida, I did not have any income from my California law corporation.  All of my legal income was from Florida clients and not California clients.

I called the FTB’s main number.  After being on hold for nearly two hours, the call disconnected.  I searched and located another number for the FTB and called a second time.  Again, after a lengthy hold, the call disconnected.

I called back and after another hour, a lady finally answered.  She politely listened to me but insisted that I owed the money.  I asked her how they determined that I owed the money even though I was three thousand miles away and hadn’t lived in California for three years in 2010.  She replied that my failure to file a return was discovered by their computer system and that the computer was “always right”.

I tried to explain to her why the computer was wrong in this case.  The year in question was 2011 and I had been living in Florida since late 2006.  I offered to send her the first page of our Federal 1040 forms for 2006 through 2018.  Those forms show a Florida address.  Since you are guilty of a federal crime in you sign your 1040 returns that contain incorrect data, this should be good evidence to show we lived in Florida since the 2007 tax year.  I offered to send her copies of my Florida driver’s license, my Florida voter registration card and a copy of my admission to the Florida bar.

She said that if I would send those documents, she would ask her superior to have the assessment reviewed again, but cautioned me that even after a second review, the assessment might still stand because their computer generated notices were “almost never wrong and the burden of proof was on me and not them.”  At that point she asked me why I didn’t just pay it.  That was an easy one.  “I don’t owe California that money”.
I faxed copies of all my documents to the number she provided.  We heard nothing back and assumed that it was handled.  A couple of months later I received a “Final Notice” that a lien was being filed against me for non-payment of the taxes owed to California.

I called back, and after more hours of calling, being on hold and getting disconnected, I finally got to speak to a live person.  I explained everything that had happened.  She put me on hold again, then finally came back and said that there was no record that they had received any of the documents I had sent.  She insisted that I did owe the money, but now it wasn’t $20,000, but $21,000.

I explained it all again, and this time I convinced her to stay on the line until she had the fax in hand.  At that point she said she would submit everything for another review, but that there was no guarantee that the matter would be dropped because “We have a high level of confidence in our computer results.”

By this time the absurdity of it all was overwhelming, so I told the lady I would make her a great deal.  If she would get me the $150,000 that I supposedly made in California in 2010, I would give California not the $21,000 they were demanding, but half of it--$75,000.  I would keep the other $75,000.   

She laughed and then did something that most IRS and FTB employees refuse to do.  She gave me her information and her direct telephone number.  She said that she was going to get the lien dismissed and close the case.

She laughed again and said that she would let me know if the matter was handled.  I never heard from her again, but I’ve also heard nothing more from the California FTB.  I can only assume that the matter was finally resolved.


How did the California FTB determine that I earned money in California and owed them taxes when it was not true?   Apparently, the computer looked at my income for the past years and decided that I “must have” earned $150,000 that I didn’t report.  The assessment was made based on the computer’s erroneous assumption.

Since we didn’t file California state income tax returns for my law corporation between 2007 and 2010, it is even more curious.  Why did their computer pick only 2011?

My situation has apparently turned out OK, even though I had to waste many hours and suffer a great deal of aggravation in the process.  Still, it’s frightening to know that this kind of computer technology can make mistakes of this magnitude.  Had I not been able to reach someone who was willing to listen to me and who really wanted to help, California could very well have filed that tax lien against me.

In that case, I would have had to go to court and challenge the tax lien.  It would have taken many more hours to ultimately prove that the lien was not proper and to have the court order it removed.  As an attorney, I would not have a problem filing the suit and appearing before the judge myself.

However, in the same situation, most people would have had to hire an attorney and spend tens of thousands of dollars fighting a bogus assessment.  For them, just paying the money they don’t owe could turn out to be the least expensive option.  If they decided to fight it, it’s possible that they could get their costs reimbursed by the government, but they would still have to come up with thousands of dollars up front and reimbursement could take years.

Ask yourself, “Do you believe that the IRS can develop a foolproof computer program that only goes after tax cheats and will never bother the rest of us?”

When you stop laughing at the absurdity of the question, the stark reality sets in.  If the IRS gets this kind of computer technology, people can no longer take comfort in the fact that IRS agents do so few audits.  We know that once the “smart people” see how much money they can extort with their computer programs, they will launch millions of computer-generated audits even though they know a significant number will produce incorrect results.

When people start to get tax liens put on their property for income taxes that they don’t owe, get evicted from their homes or have their bank accounts seized, there will certainly be an outcry.  But why wait until then to speak out against this crisis we know is coming?

There is only one way to guarantee that you will never have an improper tax lien filed against you, get evicted from your home or have you bank account seized because of an IRS computer error, and that’s to get rid of the federal income tax.  And there’s only one way to do that.  Pass the FAIRtax!

It is time that Americans take control of our country by eliminating the income/payroll tax system.  No more games that profit only the Ruling Class and their D.C. minions.   


If you have friends who don’t know about the FAIRtax, send them to  Have them watch the white boards under “How It Works” and, if they agree, ask them to please join us.

Then contact your Members of Congress and the President and demand that Congress pass -the FAIRtax—the only fair tax.

Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:

“If you want a picture of the future, imagine a boot stamping on a human face—forever.”

Is it hopeless?  When confronted with a seemingly impossible problem, remember the statement attributed to the author George Bernard Shaw who wrote, You see things; and you say “Why?”  But I dream things that never were; and I say “Why not?”

Isn’t it time for us to ask, “Why not?”
Notice of Eviction by BrianAJackson is licensed under Envato Elements

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