Real life case that I saw recently: IRS sends taxpayer letter saying he owes an additional $33,000 in taxes for the previous year. Taxpayer submits documentation to show that the IRS wasn't accounting for cost basis on securities transactions. IRS sends a letter a few months later noting that the taxpayer owes no additional taxes. They always inflate the amount owed to the maximum amount possible, then add a bunch of additional fines and interest. I guess they hope that somebody will just pay the amount stated, which is rarely accurate. My former employer (small business owner) was audited twice, so I saw firsthand how it worked.