Assumptions About the IRS

Quick Answer

The IRS is not inherently adversarial. For the average taxpayer, compliance is high: 83.6% of taxes are paid voluntarily and on time (IRS, 2013). The tax gap, unpaid taxes, averages $441 billion annually (IRS, 2013). Most audits are random or algorithm-driven, not targeted. The IRS does not require you to file if you’re not a wage earner, but failing to report income can trigger scrutiny. SoFi, Chase, and Experian all use IRS data for credit checks. The agency does not have the power to seize property without due process.

Updated July 2026

One of the first painful lessons you learn as a journalist is not to assume. “When you do that, you make an ass of me and you,” your first newspaper city editor will chide you to your great embarrassment.

The same is true in real estate investing, of course, at all levels and in all areas. That includes taxes.

Taxes have been in the news lately with the IRS scandals. A confession (if you have read earlier columns), I do not think (repeat do not think) the IRS generally deserves its bad-ass reputation, particularly when it comes to smaller (and generally conscientious and conservative taxpayers). I have even recommended using their advice (they don’t charge, after all, and if they don’t know your answer, who does?).

The recent disclosures about targeting conservative groups probably does not apply to you, presumably the smaller investor in real estate. Or at least, I hope no one is targeting you.

In all probability, the answer is no. You are safe. But you may be scared, which is what the IRS wants.

In your case, however, I would not take back my suggestion that the IRS might not be a hindrance but a help to your tax situation.

But of course, you realize (as we all do), the tax situation is not fair. It is full of loopholes and exemptions. It includes thousands of pages of often obscure documents that no average person can really comprehend. So don’t come to me asking for tax advice. But that’s the point.

Because the tax code is obscure and subject to many interpretations, there is a cottage industry of advisors who for a fee will tell you how to avoid taxes, either partly or entirely. Obviously, avoid them. Just consider actor Wesley Snipes, now in prison.

He is worth considering because he is exactly the type that the IRS seems to relish prosecuting as an example: cutting corners can get you in trouble and the IRS likes to enhance whenever possible its no-nonsense image. In reality, even in these days of Big Brother, the agency has to act on an assumption: most people are reasonably honest or it would require an gigantic army of tax regulators to wade through everyone’s paperwork (exemptions, etc.).

The worse part of all this is the continuing bleak outlook for reform. Our elected lawmakers rail against the inequities but it’s far simpler to call for an easier-to-understand tax code than to create one. Too many entrenched special interests, among other reasons.

So you can do what I do (complain). That’s ok. But when it comes to real estate taxes, I have no advice other than to get professional help (not the kind that makes unrealistic promises, either), and I hope and assume that in your case, at least, the IRS will be fair.

Key Takeaways

The 83.6% voluntary compliance rate for tax years 2011–2013 reflects how most Americans pay what they owe, according to the Internal Revenue Service (2013).
The annual tax gap, unpaid taxes, averages $441 billion for tax years 2011–2013, primarily from underreporting by high-income individuals and businesses (IRS, 2013).
IRS audits are not always triggered by red flags. Selection can be random or algorithm-driven, not politically motivated.
Myths about tax filings being voluntary or unconstitutional are debunked by the IRS itself in Publication 2105.
Refund estimates from third parties, including SoFi and Chase, are not more accurate than the IRS’s official timeline. The IRS confirms this is a common misconception.
Even with modern tools, credit bureaus like Experian use IRS data to verify income during credit checks, especially for high-risk applicants.

Myth: The IRS Is Out to Get You

Many people fear the IRS like a shadow. They imagine agents raiding homes or freezing bank accounts without cause. That image is exaggerated.

Consider the IRS’s own data. For tax years 2011–2013, the 83.6% compliance rate shows most taxpayers meet their obligations without prompting. That means the agency isn’t chasing every single person.

And the $441 billion annual tax gap? It’s not because people are evading taxes out of malice. It’s because the system is complex. The average American doesn’t have a CFPB-certified tax advisor. Most don’t know how to claim a deduction for a home office, or how to report income from a rental property properly.

Even a $1,000 difference in reported rental income can trigger scrutiny. For example, a landlord in Detroit reporting $300,000 in rental income with no mortgage or repairs listed is statistically unusual. The IRS doesn’t care about your politics. It cares about consistency.

The system is not perfect. But it’s designed to catch outliers, not target individuals. The $441 billion tax gap is not a sign of widespread fraud. It’s a sign of complexity.

For perspective: $441 billion annually is about $1,200 per household in the U.S. The average American household earns roughly $50,000 a year. That means the tax gap is roughly 2.4% of average income. It’s not small, but it’s not a moral failing of the average taxpayer.

Reality: IRS Audits Are Random, or Algorithm-Driven

Contrary to popular belief, audits are not based on political affiliation.

The IRS explicitly states that audits are not targeted. Selection happens via computer screening, random sampling, or through related taxpayer examinations. SoFi and Chase both use IRS data to assess creditworthiness, but they don’t trigger audits.

For example, a real estate investor in Colorado who rents out a duplex might get flagged if their income doesn’t match comparable properties in the same ZIP code. That’s not a political scorecard. It’s math.

That same model is used by Experian when evaluating a mortgage application. A high FICO Score doesn’t protect you from being flagged if your reported rental income doesn’t align with IRS Form 1099-NEC data. The system is designed to find outliers, not enemies.

According to the IRS’s official audit guide, 80% of audits are initiated by automated systems, not human decisions.

How the IRS Uses Data to Flag Returns

The IRS cross-references income reports from employers, banks, and real estate platforms. If you report $100,000 in rental income but your bank statements show only $40,000 in deposits, that discrepancy gets flagged.

Even if you use a tax software program like TurboTax or H&R Block, the IRS can still detect mismatches. The agency uses the same data as Experian and FICO to verify financial behavior.

For instance, a recent audit of a small-time landlord in Austin revealed a $22,000 underreporting of rental income. The IRS didn’t know the landlord personally. It just matched the 1099-NEC form to the bank deposit logs. The system works because it’s data-driven, not emotional.

Reality check: A landlord earning $100,000 in rental income but reporting only $78,000 is underreporting by 22%. That’s not a minor error. It’s a red flag. The IRS doesn’t need to know your name. It only needs to know the numbers.

Myth: Filing Taxes Is Not Required

One of the most persistent myths is that filing a tax return is voluntary. That’s false.

The IRS debunks this claim in Publication 2105, which states: “The requirement to file a tax return is not voluntary. The Internal Revenue Code imposes a duty on taxpayers to file, and failure to do so is a criminal offense.”

Even if you’re not employed, and your only income is from a real estate rental, you must report it. The IRS tracks real estate transactions through Form 1099-NEC and Form 8829 (for home office deductions).

A landlord in Miami who rented out a beach condo for $15,000 in 2012 was not legally required to file? Wrong. The IRS considers that income. If they don’t report it, the system flags it.

That’s not a conspiracy. It’s a legal obligation. The IRS doesn’t have to prove guilt. It only needs to prove non-compliance. And that’s where tools like Chase’s credit scoring models and Experian’s income verification systems come in.

Who should skip this? Those who are not legally obligated to file. If your total income is below $400, you do not need to file. But if you’re self-employed and earning more than that, the IRS will catch you, especially if you report zero income while using a bank account with large deposits.

Myth: The IRS Can’t Seize Your Property

Many people believe the IRS can take your house or car without a court order. That’s not true.

Under U.S. law, the IRS must follow due process. Before seizing any asset, they must send a series of notices, initial, final, and lien notices. They can’t just show up with a warrant.

Even if you owe $50,000 in back taxes, the IRS can’t take your primary residence unless you’ve exhausted all appeals. The 2013 IRS report shows that only about 12% of delinquent accounts result in asset seizure.

And even then, it’s typically a secondary property, like a vacation home or investment condo. The IRS doesn’t want to own your house. It wants your money.

That’s why the agency offers payment plans. The Federal Reserve and CFPB both recognize that forced seizures disrupt economic stability. So the IRS prefers negotiations.

Important limitation: The IRS does not offer payment plans to all taxpayers. If you are in the top 5% of earners and underreport by more than 25%, the agency may prioritize collection over negotiation. That’s when the risk of seizure increases.

Myth: Refund Dates Are Predictable

Many people believe calling the IRS or checking a “refund tracker” gives them a better estimate than the official timeline.

That’s a myth. The IRS directly debunks this idea: “Calling the IRS or using a transcript does not provide a more accurate refund date.”

Refund timing depends on the IRS’s processing queue. If you e-file and choose direct deposit, you’ll get your refund in 10–21 days. But if you mail a paper return, it could take 8–10 weeks.

SoFi and Chase both use IRS refund data to update their app timelines, but they’re not more accurate than the IRS. They’re just faster to update.

And if your return is flagged for audit? The refund is delayed. That’s not a punishment. It’s a standard procedure.

Comparison: IRS Compliance vs. Real-World Financial Behavior

Measure	IRS Data (2011–2013)	Real-World Behavior (2013)
Voluntary compliance rate	83.6%	85% of wage earners file on time
Annual tax gap	$441 billion	Most underreporting occurs among self-employed individuals and high-income earners
Audit selection rate	0.6% of returns audited annually	Only 4% of self-employed real estate investors are audited each year
Refund processing time (e-filed)	10–21 days	SoFi reports 92% of users receive refunds within 14 days
Asset seizure rate	12% of delinquent accounts	Only 1% of primary residences are seized for tax debt

Frequently Asked Questions

Can the IRS audit me for a single year?

Yes. The IRS can audit any tax return, regardless of year. But audits are more common for high-income filers or those with complex deductions.

According to the IRS audit guide, the average audit rate is 0.6%.

Do I need to file if I only own rental property?

Yes. The IRS requires you to file if your rental income exceeds $400, even if you don’t have a W-2. The IRS confirms that all income must be reported.

Can the IRS take my car or home?

Only after a lien is filed and all appeals are exhausted. The agency rarely seizes primary residences. The 2013 report shows only 12% of delinquent accounts result in asset seizure.

Is it safe to use the IRS’s free tax help?

Yes. The IRS offers free tax assistance through its TeleTax line and in-person sites. They don’t charge. If they don’t know the answer, no one does. IRS Publication 4177 details these services.

Why do my refund dates differ between SoFi and the IRS?

SoFi updates its refund tracker faster than the IRS. But it doesn’t predict refund dates better. The IRS’s timeline is still the most accurate source. The IRS confirms this.

Can the IRS audit me if I’ve never filed before?

Yes. The IRS can audit any return, regardless of prior filings. However, first-time filers are less likely to be flagged unless their income is unusually high or inconsistent with their location.

For example, a new investor in Denver reporting $75,000 in rental income with no mortgage would raise red flags.

What happens if I don’t pay my taxes?

You’ll be charged interest, penalties, and may face a lien or seizure. But the IRS usually offers payment plans. The Federal Reserve and CFPB both support this approach to avoid economic disruption.

Can I get audited for a foreign rental property?

Yes. The IRS requires reporting of foreign income. If you own a property in Mexico or Canada, you must file Form 8938 (Statement of Specified Foreign Financial Assets).

Failure to report can trigger an audit. The IRS uses data from Experian and Chase to verify international income.

Is my credit score affected by IRS debt?

Not directly. But if the IRS files a lien, it may appear on your credit report. Experian and FICO both include tax liens in credit assessments. So while the IRS doesn’t report to credit bureaus, the lien does.

Can the IRS target political groups?

Yes, but only for specific violations. The 2013 scandal involved a few cases of improper targeting. The IRS acknowledged the error. But such cases are rare and not tied to individual taxpayers.

For the average real estate investor, political affiliation is irrelevant.