Will your 1990 federal income tax return be audited? The chance is small. Yet, there is no way you can with certainty avoid an audit -- your return simply may be chosen at random. Fortunately for most of you, it's like a lottery in reverse. The odds yours will be an "unlucky number" are low.
The Internal Revenue Service has a relatively standardized system for deciding which tax returns are automatic audit candidates. The details of this process are a well-guarded secret. Aided by computers, the IRS brings to the top of the heap those that arouse suspicion. The high volume of returns should not encourage you that yours will be overlooked.
It is better, say the experts, to be mindful of audits when your return is prepared. Don't try to cheat. IRS examiners know all the ways. Be conscientious in preparing your return. You must be at least acquainted with the rules. To help you, there are a score of tax manuals available in bookstores and on newsstands this time of year, and tax preparation software is available at your computer store. Your attorney, accountant or other tax preparer uses professional software and professional tax guides.
Being conscientious also means that you will keep precise records of all your transactions. If you have unusual medical deductions or charitable contributions that fall outside the IRS guidelines, you sometimes can avoid an audit simply by attaching the proof to your return.
These, say the editors at Matthew Bender, are audit triggers you should try to avoid this April:
* Tax shelters. Real estate and other tax shelters with high write-offs frequently are subject to severe IRS scrutiny. The IRS believes these shelters have a high potential for abuse.
* Returns prepared by those on the "problem preparers" list. District IRS offices quickly identify preparers who clearly violate the law. Choose your professional tax preparer with care.
* Travel and entertainment expense deduction. Keep well-maintained, detailed diaries of these expenses. For example, the IRS will expect your entertainment records to include the name of the person entertained and the person's business relationship to the taxpayer.
* Business use of automobile deduction. Expense must be apportioned between personal and business use of the automobile. Detailed documentation (that is, a daily log book with trip and mileage information, receipts and the like) will help support your claimed deduction in this particularly audit-sensitive area.
* Home office expense deduction. The taxpayer must meet stringent requirements to succeed in getting a deduction for home office expenses. Such deductions frequently are disallowed.
* Casualty losses. Only loss resulting from an event that is "sudden, unexpected and unusual in nature" is allowed as a casualty loss. The IRS often disputes the meaning of these terms, so it is not always clear that a loss is due to casualty. In any event, the taxpayer should retain any documentation that would substantiate the claim of loss.
* Hobby losses. A loss arising from an activity the taxpayer is not engaged in for profit is allowed as a deduction only to the extent of the income derived from the activity. Therefore, the taxpayer must report hobby income if a loss is claimed.
* Barter income. This is income received in the form of goods and/or services. It includes the relatively informal swapping of services by individuals as well as barter through organized groups. The IRS is alert to the inherent potential for abuse in barter situations and scrutinizes these transactions accordingly.
* Charitable deductions. Donations of real property, art work, jewelry and the like may be especially audit-sensitive because of questions of valuation.