Reasons for Audits

Many Americans are audited each year by the IRS. What alerts the IRS to conduct an audit? Are there specific causes why someone is audited? The IRS computer system generates the majority of audits. The information on your 1099 and W-2 forms are compared to the information in the tax return. It must get a match. If there's no match, you'll receive an IRS notice for audit. This commences the correspondence audit. High travel and entertainment deductions, little or non-existent business profit, low gross profit margin, too high car expenses, and high use of cars in your business are some flags the computer system looks into. The IRS may investigate you further based on:

• Large amounts of itemized deductions
• Undeclared taxable income
• Cash or tips in business
• A record of tax deficiency and prior audit
• Claims of tax shelter investment losses
• Higher than normal business expenses for your business
• Large cash amounts of charitable donations
• Partner or shareholder in a business
• Complex tax transactions with no explanations

You might be audited if you take all your tax deductions, but if you haven't done anything illegal, there should be no cause for worry. Selection for audit are also done through:

• You are a member of a special target group: The IRS classifies certain professions as in need of scrutiny.
• You're part of a market segment specialization program for specific workers.
• You were audited once, so there's a high chance that you'll be audited again.
• You were once involved in a crime with a big amount of cash involved.
• You have amended a return and claimed a refund: If you've amended a return and claimed a refund on any tax return within three years of its deadline, you have a fairly high chance of being audited.
• You have been reported to the IRS: Reports can be from an ex-spouse, business associates, former employees, or a law enforcement agency.
• You are part of the taxpayers compliance measurement program: The IRS selects roughly 50,000 taxpayers randomly every 3 years for this program.

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Originally posted 2008-01-16 04:35:07. Republished by Blog Post Promoter

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