How to deal with an audit

Andrew Leckey

April 14, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Never let 'em see you sweat.

Even that gritty slogan from a popular deodorant commercial may not be enough to help the average taxpayer through one of life's singularly trying events: an IRS tax audit.

Less than 1 percent of taxpayers in a given year are subjected to this cruel and unusual punishment, though the likelihood of an audit nearly doubles for those who earn $50,000 or more.

As Americans toss their 1991 federal tax returns into the mail before tomorrow's deadline, deep in the recesses of their minds lurks the nagging worry that this return just might come back to haunt them one day.

"Most of the returns we audit are selected by computer, by matching information from 1099 forms with information on your return, or by monitoring related transactions, such as the sale of property," said Belinda McCafferty, a regional IRS assistant audit chief.

Though some audits are random, certain aberrations in your return are more likely to trigger red flags in the IRS computer. It doesn't necessarily mean that you have the look of a tax dodger, but rather that greater complexity in your return promises a stronger opportunity for finding errors.

"The odds of your being audited are significantly greater if you have a high income, if you're self-employed or if you have a lot of travel and entertainment deductions," said Barbara Pope, a tax partner and personal finance specialist with Price Waterhouse.

In addition, people who itemize are more likely to be audited than those who claim the standard deduction. Another wrinkle is that the IRS now often matches deductions for alimony payments by one former spouse with income reported by the other to find discrepancies. Investors in tax shelters also get the call more often.

In many cases, additional information is simply requested and the entire matter can be cleared up in the mail. If you don't answer promptly and satisfactorily, you may be called in for a full audit. Other times, you'll be scheduled right off the bat for that hourlong audit appointment at a local IRS office.

The audit letter will tell you the specific portions of your return to be examined. Bring necessary records and copies of the tax return in question and the prior year's as well.

The statute of limitations means the government can't assess any additional income tax after three years have passed from April 15 or the date you filed your return, whichever is later. That statute doesn't apply if you either didn't file or filed a fraudulent return.

Whether you bring your tax preparer with you or go by yourself depends on the complexity of the problem. Some individuals are better off not going to an audit because they may wind up nervously going off on a tangent that unnecessarily raises other questions, or wind up in an argument that is counterproductive.

"The IRS agents realize you'll be nervous, and you should be cooperative by responding to questions that are asked," advised Ms. Pope. "Never volunteer additional information you're not asked about, but instead keep your mouth shut."

If your case requires a great deal of documentation or also involves a business you own, the audit may be conducted in your home or office.

And if you do get an audit notice, don't let it sit around. The IRS is very unhappy when it's ignored, because, like a skeptical parent, it fears the worst.

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