Suggestions for avoiding audit: valid?

Don't remember the source, but in my tax folder I have a 3x5 card on which I wrote the following suggestions for avoiding an audit. Are they good ideas?

  1. Prepare your return by computer.
  2. Don't use electronic filing.
  3. Don't use the IRS preprinted label.
  4. If you owe tax, leave a few dollars unpaid.
  5. Don't use Schedule C for outside income--use Line 21.

Thx. Ed

> > > > > > > > >
Reply to
Ed Wicks
Loading thread data ...

1 thru 4 are urban legends. Whatever various (essentially computer) programs IRS has to select returns for audit screening, none of that stuff is relevant.

#5 would be very effective, but (and for that reason) is a crime under 7206, even if S/E is fully paid. It appears to clearly pass what DOJ calls the "DiVarco test," and worse than what Mr. DiVarco did. Under 7206, it isn't necessary there be an underpayment of tax. Only tax perjury -- willfully falsifying as to even one material item, much less omitting every entry on a Sch C. Mr. DiVarco only lied about the nature of his reported Sch C business. Worse, it is not a matter for the jury to decide whether IRS enforcement was impeded by the defendant's falsity. Only that the gov't state that it was. Nor need it be proven what the defendant's motives were in the falsity.

Fred F.

Reply to
TxSrv

Guarantees a pretty return without math errors. Reduces error resolution; no effect on audits.

Urban legend. Everything needed for computer audit potential analysis is transcribed from paper returns.

Huge pile of BS. All the label does is reduce the possibility that a data transcriber will mess up your name and address.

Twaddle. Audit analysis doesn't care whether you paid the original balance due.

An excellent way to guarantee an audit.

Were I you I'd send that card to the person I most hate.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

Invalid.

Invalid.

Invalid.

Invalid. Bad idea.

Invalid. A Very Bad Idea if the outside income is from a trade or business.

Reply to
Bill Brown

All of these are silly, but perhaps the silliest is the last one. If you have non-employee compensation and do not use Schedule C, you will invite a closer look.

Reply to
Mike Wellman

#1 I would agree with

Reply to
Rod

Other than suggestion #5, all of your suggestions are irrelevant.

1) The only thing not preparing your return by hand might do is slow up the automatic processing mechanisms if your handwriting is illegible. Truly atrocious handwriting might also get you a telephone audit, but once your handwriting issues are cleared up, there won't be an audit (assuming your numbers were otherwise correct). 2) Again, the only thing not using electronic filing will do is slow down the processing time, and thus the time til you get your refund. 3) ??

4) ?? Leaving unpaid a few dollars of your tax due and owing is not only a good way to avoid an audit, it's a good way to get sent a notice of deficiency, along with a potential audit.

5) This will avoid an audit if your "outside income" is from activities that do not rise to the level of a trade or business, and aren't from activities that must be reported on other schedules. Reporting non-business income as business income on Sch. C is inviting an audit, if it's pretty clear that there was no business. On the other hand, reporting what is clearly business income on line 21 instead of on Sch. C is also inviting an audit.
Reply to
Shyster1040

Point 2 is valid, points 1 and 3 arguable, and points 4 and

5 just silly in my opinion. When you file a paper return, the IRS does NOT capture all of the data on the return. When you file an electronic return, they do. Filing an electronic return thus provides more data for analysis. On certain forms the IRS collects as little as 15% of the information provided via a paper return. Using a computer would lower the chance of a mathematical error or of forgetting a required form, so that makes sense. The IRS has used preprinted labels for a variety of unsavory (to the average taxpayer) reasons from time to time. Currently? I don't know. But for dog's sake, if you owe tax and leave a few dollars unpaid you'll just generate correspondence with the IRS as they seek to collect the balance... plus penalties and interest. You should use Schedule C when appropriate and line 21 as little as possible.

-Crystal

Reply to
pleasedontemailme

Yes, No, No, No, No.

Reply to
Taxmanhog

Crystal is correct on #2.

Reply to
ltsllc

Since someone else agreed with you on point 2, I have to take the time to say "it just ain't so." It doesn't matter what data is "captured" from either efiling or a paper return, IRS has their own criteria when it comes to audits, and detailed expenses on a schedule c isn't one of them. IRS is more interested in probabilities and gross income and net losses than the teeny weeny details. ChEAr$, Harlan Lunsford, EA n LA efiler since 1989 and EA for a loooong time

Reply to
Harlan Lunsford

Whether electronic or paper, the data is available, at least on a ~well prepared~ return. More data is better, the examiners have more data to answer questions that arise in common mis-matches during the cp2000/2501 screening process. Math verification of a computer prepared and subsequently E-filed return reduces human induced errors. The only negative I see for the TP, if they are in a collection action on prior liabilities or the return currently being filed, the bank & wage information in the ELF file become immediate targets as levy sources in the collection stream. In the days or old, this information took longer to merge into collection LEVY SOURCE data systems

Reply to
Taxmanhog

"Since someone else agreed with you on point 2, I have to take the time to say "it just ain't so." "

My decades of IRS work experience says that it "just is so", exactly as Crystal described. Everyone should remember that the IRS is not your friend and they are not there to help you. Electronic filing is a case in point. With electronic filing, the IRS makes it seem like such a great deal for the taxpayer but what they are doing is passing on the time, expense, errors, etc of data entry by IRS employees onto the taxpayer and to add insult to injury, the taxpayer gets to pay for it! The DIF score formula has not been changed in years yet tax law has and so there are more entries and more forms and schedules that are NOT reflected in the DIF score formula. However, the IRS does have other ways of selecting tax returns for audit that don't involve DIF scores, and by electronically filing, you are providing the IRS with MORE info to use to (possibly) select your return for audit or examination. By filing electronically, ALL of your tax info is stored on IRS computers and simple computer programming can be (and is) done to select tax returns that meet certain examination criteria. If your paper filed tax return did not have all of its entries input, which is always the case, then in certain situations your tax return will not meet the examination criteria and won't be on the list for possible examination. Rudy

formatting link

Disclaimer: The posted answer is for educational and guidance purposes only and Lizcano Tax Services, LLC and/or Rodolfo Lizcano have not been engaged to render any tax, accounting, legal, or other professional services.

Reply to
ltsllc

Finally a CPA who points out the reality! Electronic filing is generally NOT in the interest of the taxpayer. Any savings in processing expense is unlikely ever to result in increased net tax revenue -- the IRS will simply redeploy staff into audit and enforcement. Further, by insulating the IRS from the expenses that a complex tax code entails -- even if it is simply the modest expense of having to employ armies of clerks typing in details from increasingly esoteric forms -- all the brakes are off and the tax code can be made ever more complex and confusing at no cost to the government. Extra audits and an even more complex tax code might be good news for CPAs, EOs and accountants. But it certainly isn't good news for the rest of us. So remember people -- "Print and Post. It'll save you the most!"

Reply to
Tony Cox

It would help to know just when you retired from the service. Things do change, you know.

You give the impression that IRS goes out of it's way to NOT be friendly, and that just isn't so, either. My clients tell me that when they contact IRS they (almost, 95% of the time) always receive courteous service. Like the one fellow whose out of town mileage for 2004 got disallowed by letter audit. He spoke with the lady (I was out of the country at the time), and she went out of her way to say that this was JUST for 2004 and had nothing to do with 2005. You can imagine why she noticed that. (grin) No matter that he efiled or not, the data was still there.

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.