Professional Tax Services of Long Island, LLC
What kind of things will increase my risk of getting an audit?
Not all audits are terrible. You may simply have an error
and they will notify you of this. The IRS relies on computerized matching of income items such as wages (W-2), interest income (1099-I),
pension income (1099-R), etc. If your numbers don’t match what was reported to the IRS by the issuer, your return will get pulled
and you will receive a letter to adjust your tax. These audits are often handled by mail and worked on at the auditor’s desk and are
often referred to as “desk audits”. Not so bad.
Some items will draw more scrutiny and then the audit may get more
involved. More experienced auditors will handle more complex audits. These audits will typically be handled in the field and are thus
called “Field audits”.
Some items of IRS interest might be:
- Itemized deductions that exceed IRS averages
- Claiming tax shelter losses
- Reporting
complex transactions
- Working in a job or business that tends to deal in a lot of cash
- Having business expenses high relative
to income
- Charitable donations high relative to income
- Prior audit history that resulted in additional taxes generated
- Being a shareholder of a closely held corporation that is under audit
- An informant shares information to the IRS
Another
area that has drawn a lot of attention in recent years is called “Economic Reality”. The IRS has been looking at things beyond
the numbers and paperwork. If the IRS suspects one’s expenses and lifestyle exceed reported income, this can be a more serious
matter.
The IRS has taken a lot of political heat over the last decade, so they have gotten more “customer friendly” .
Enforcement and audit functions in the past had deteriorated as a result. The pendulum has swung the other way and things are
toughening again. Enforcement, collections and audit functions are on track and increasing. Despite this political tide
change, legislation exists protecting taxpayers’ right to be treated fairly, professionally, promptly and courteously
by IRS employees.
Professional Tax Services of Long Island, LLC
What are my chances of getting audited?
The good news is that your odds of getting audited are small. However, the number of audits
conducted by the IRS has been on the rise since 2000. This audit rate is expected to continue upward as the government pursues revenue
during these tough economic times.
How does the IRS pick tax returns for audit?
This depends on your income level, the complexity
of your tax return and your profession, among other things. The IRS can’t examine every return, so they determine the risk of error
in each part of your return by a computer formula and rank your return for a total score. If you score high enough, your return gets
pulled for review.