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Marvin has come to your office for help in filing his 2022 federal income tax return. He gives you the following information:

Marvin is single and works for Tesla. Marvin received a salary of $150,000 in 2022, as reported on his W-2. Marvin had $9,000 of federal income tax withheld from his paychecks during the year.

Marvin bought and sold various stocks in 2022. He had $4,000 in capital gains from the sales and $2,000 in capital losses from sales.

Next, assume that you filed the tax return based on the information above on March 20, 2023. In August 2023 you discover that Marvin did not mention to you that he received other taxable income of $35,000 in 2022 as reported on a Form 1099-MISC. This was a one-time transaction and you are not sure if Marvin intentionally omitted the information or if he made an honest mistake since it was a one-time transaction.

Marvin has asked you how likely it is that his return will be audited, and if audited, how does the typical audit work. In addition, Marvin has asked you how long the IRS has to audit his tax return and decide if Marvin owes more tax.

Please explain to Marvin the likelihood of audit and what the initial audit would involve. Also, explain what the last day the IRS can audit his return and seek to impose additional tax is. Be sure to fully explain your reasoning.

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