Home Add to Favorite Contact Submit  
             31 March, 2023

Category:  Articles » Finances » Taxes


IRS Turns to Computers to Choose Who Gets Audited and Who Doesn't

         Views: 1734
2007-08-05 17:30:15     
Article by Becky Schmitz

Taxpayers audited by the IRS aren't selected randomly by humans any longer. They're chosen methodically by computers looking, line by line, for irregularities in tax returns. An Internal Revenue Service (IRS) audit can make even an honest and thorough taxpayer worried. In fact though, an IRS audit is simply a review of your tax return to determine how accurate it is.

Taxpayers Likely to be Audited

-People who receive cash for their work instead of or supplementing a paycheck are more likely to be audited than others because people in these lines of work such as servers and hairstylists often do not declare all of their income and the IRS realizes this. The best way for these workers to do well in an audit is to declare all of their income and this includes tips.
-People who run their own businesses are also likely to be targeted for an IRS audit. If you notice that accountants, lawyers and doctors tend to be audited, many of them run their own businesses and are responsible for their own bookkeeping.
-Taxpayers who make large and unusual deductions are readily spotted by IRS computers so people who make these types of deductions should be sure they are justified.
-Deductions such as medical and casualty loss that must exceed a certain amount of your income before they can be claimed, large charity contribution deductions and home office deductions are the deductions most likely to be questioned.
-Other factors that increase the chance of an IRS audit include drastic changes in income from year-to-year, a lot of round numbers on your return such as 5,000 as these are rare in real life, incomplete or illegible returns, a low income compared to place of residence or financial obligations and differences between federal and state returns because employees do compare data on returns.

To help combat the problem of taxpayers who don't pay all of their taxes, officials at the Internal Revenue Service have announced plans to start a new National Research Program (NRP) study for individual taxpayers that will provide updated and more accurate audit selection tools.

The IRS will be choosing 13,000 taxpayers for audits at random for the study. The IRS plans to select taxpayers from various income categories and use the data collected to update the criteria it uses to determine what returns to audit with the goal of doing a better a job of catching people who don't pay their taxes in full or at all. A sample of 13,000 taxpayers is small compared to the around 136 million people who pay taxes yet the 13,000 taxpayer audit will probably include more people than a regular audit.

This latest NRP study, which will begin in October 2007 and examine approximately 13,000 random tax year 2006 individual returns, will be the first of an ongoing series of annual individual studies using a multi-year rolling methodology. Similar sample sizes will be used in subsequent tax years.

An advantage of using this method compared to previous studies which selected tax returns from over 45,000 taxpayers during a single year is that by combining results over rolling three-year periods, the IRS will be able to make updates and develop more efficient plans on an annual basis, after the initial three studies.

The main reason for these random audits is to reduce the nation's tax gap, which results from un-filed returns, underreporting income and underpaying taxes. The tax gap is the difference between what the IRS receives in tax payments and what they should have received from taxpayers. To an individual taxpayer, the tax gap might not seem like a lot, but it adds up. IRS officials estimate that the net tax gap for tax year 2001 was $290 billion.

The initial group of 13,000 taxpayers whose returns are chosen for audit under the new NRP study will begin receiving official letters in October informing them that they are part of the IRS research study. The majority of the individuals selected will have certain lines of their tax returns confirmed during in-person audits with an IRS examiner. When deciding whether you need a tax professional to help you face an in-person IRS audit, consider the tax amount being questioned compared to the cost of professional assistance.

Becky Schmitz is a Certified Tax Resolution Specialist, a member of the American Society of IRS Problem Solvers and an Enrolled Agent. You can contact her at 406-651-4445 to obtain a free subscription to her newsletter titled The IRS Times & Inquirer. Becky Schmitz is also owner of Centsable Accounting (http://www.centsableaccounting.com/), a tax problem resolution firm in Billings, Montana that offers tax related services including IRS audit representation.

Specialized in: Irs Turns
URL: http://www.centsableaccounting.com
Print article      Bookmark this page
Related Articles 
Ways to Qualify For a UK Income Tax Refund (Popularity: ): How does a resident of the United Kingdom qualify for a fast online tax return? One third of Pay As You Earn employees are owed a repayment on their income taxes. There are many reasons why this may occur, but the main one is that the system is far from perfect.Consider some of the following scenarios. Anyone who has been employed for under a year are often due for cheap ...
Guidance on Creating Tax Receipt (Popularity: ): A tax receipt is very important to simply keep track of the various types of taxes paid by you to the government.Here is how you can actually create a tax receipt.The first thing that you have to do is simply keep track of your tax payments. When you pay a tax you must get a receipt, you should keep it with you always.Use the information provided on the current receipt ...
Appealing Your Property Taxes (Popularity: ): Thousands of Texas homeowners will go through the property tax appeal process this year because the appraisal district incorrectly assessed their home's value. Sometimes getting a satisfactory reduction takes some time, but it is important to utilize the options available until you are offered a fair reduction.Effective September 1, 2005, the Texas Legislature amended the Texas Property Tax Code to allow property owners the option of appealing an Appraisal Review ...
Tax Breaks - Want to Learn How You Can Maximize Yours? (Popularity: ): Owning a home-based business and educating ourselves to the many tax breaks allowed by Congress as we sought to market our business for a profit opened our eyes to what we really had in our hands. We took that education all the way to the bank this April when we had our income tax preparation done. After completion of our income tax return by "the people," we had a whopping ...
Gas Tax Holiday - What Will They Think Of Next? (Popularity: ): America has become the land of short term fixes. Instant gratification. Free money! Free gas! Woo hoo! What ever happened to gold ole fashion hard work, a can do attitude and long term stability. How about accountability for your actions? Ok, now I am ranting. Back to the topic.This is not intended to be a politically charged, finger pointing, he said she said. So I will just refer to them ...

Related Business 
Get IRS Tax Help (Popularity: ): Searching for Help with IRS? Our firm can present you with the IRS Tax Help you need. Numerous IRS problems produce an increase in IRS tax debt. If you’re coping with IRS back taxes, you're facing a tax audit or perhaps you're trying to lower IRS debt from interest and also tax penalties, our firm provides you the Help with IRS you need.
Tax Negotiations (Popularity: ): We work with IRS for every type of tax related and IRS related collection subject. But we specialize in IRS Wage Levy Releases and Federal Tax Levy Releases and the rare IRS Bank Levy Release. This site contains a lot of the information you need, and it will answer many of your questions about your Wage Levy, IRS Levy, Bank Levy, Federal Tax Levy, IRS Tax Garnishment, IRS Offer in ...
US Tax Shield (Popularity: ): Irs back tax help. The staff at Ustaxshield.com can offer top notch guidance to beating IRS tax liens within Atlanta. The IRS will take advantage of a taxpayer that is not knowledgeable about tax law and IRS collection procedures. Frankly, taxpayers need to be protected from IRS error, abuse and intimidation.
IRS Levy (Popularity: ): Tax Help Associates is a team of former IRS agents and tax professionals providing Business Consulting Services. We aim at helping tax payers in filing return on Unfiled Taxes and IRS matters like IRS Levy, IRS Settlement and Bank Levy.
New Hope Tax Relief (Popularity: ): When you the owe the IRS money, life can be stressful. If you don't take action, the IRS may take enforced collection action to destroy your life. If that happens to you or someone you know, you need an IRS tax representation company you can trust. New Hope Tax Relief is one of the premier tax resolution companies in America devoted to protecting your tax rights. We can provide you ...
Instant Tax Solutions, LLC. (Popularity: ): Need an IRS Tax Attorney? Get Tax Relief from our team of experienced attorneys, lawyers, CPA's and IRS enrolled agents. Free Tax Relief Consultation. Our goal is to resolve your IRS tax problem, reduce your IRS tax debt, and relieve your anxiety and stress.
Sigma Insurance Review (Popularity: ): The most demanded insurance kinds and features like car, health, life, news and home for total safety and confidence in future. Choose what kind of insurance are you looking for. If they had to treat a preemie, for example, what is a medical insurance plan that doesn't pay for things consistently, doesn't pay well, etc? If you were a doctor, what type of insurance would you NOT want to deal ...
ClearLearning (Popularity: ): Test Pilot turns personal computers and servers into powerful online testing, tutorial and survey engines.
ProLux Carpet Cleaning (Popularity: ): Who doesn't want a clean home? Sometimes our busy schedule doesn't allow us to clean every room in our homes perfectly. But if you choose ProLux Cleaning, you can get excellently cleaned home at great prices and in no time. This cleaning company offers prompt professional cleaning services at fixed prices to business and private customers.
Barouti & Peng, LLC. (Popularity: ): Enrolled Agents licensed to appear before the IRS. We exclusively handle IRS and State tax matters.