[Dixielandjazz] Musicians & Tax Audits

Steve barbone barbonestreet at earthlink.net
Sun Mar 13 14:44:35 PST 2005

David Littlefield wrote (polite snip)
> The IRS audited my 1987 tax return, a $100k "gig" year.
> The best advice I ever got was from a musician tax lawyer: the audit is NOT
> out to get you, but to see whether you need to be gotten. Therefore, you
> should view it as an educational *opportunity*.

Generally a great post, good advice. However I have a nit to pick with the
above small portion of it, being a lawyer by training.

I've been audited several times. All of the audits occurred when my Tax
returns showed more than 100K income. Only had to pay once when I made a
rather large error concerning accelerated depreciation on a substantial
capital expenditure. (honest mistake) That was on the first audit, and a
trigger for several subsequent audits. But since they came up dry on the
following audits, they took me off their preferred customer list.

In my conversations with IRS attorneys as friends and as the guy sitting
across the table, they don't audit you to see if you need to be gotten. They
audit you because they think they can find mistakes or overzealous
deductions, or under reporting of income. And that those "errors" will
result in a payment from you to IRS that will more than justify the time
(read money) they spend doing the audit.

In other words, they are a BUSINESS and are trying to make a profit which is
the difference between their expenses and your payment. Though they may deny
it, IRS auditors are judged on how much "PROFIT" they make, each year. Or by
some high profile case that "sends a message."

That is why they go after the high earners (over $100K, then, maybe higher
now) Other than some random audits, they only go after lower earners who
appear to be somewhat lax in their interpretation of the tax laws, or have
made an obvious mistake on the return. Even then, they sometimes will just
point out your mistake in a letter and ask for a check.

If you are a musician grossing $30K or so, they generally will not bother
you. BUT if you are grossing $100K or more, they figure they can get at
least $1K via a short audit (one hour or less), or $10K or so if they start
to find irregularities and keep you around a bit longer.

And if you gross $1000K like Willie Nelson or Madonna, watch out and make
sure the folks who do your taxes are not idiots.
Steve Barbone

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