More IRS audits

[coffeeseven]

This article could have been called The Last Gasps of a Dieing Beast.

http://www.philly.com/philly/business/20071105_A_letter_from_IRS_you_do_not_want.html

A letter from IRS you do not want
New auditing initiative promises to be grueling.

By Chris Mondics

Inquirer Staff Writer
A very selective national lottery is under way, and you better hope your number does not come up.

> It is a new IRS audit initiative aimed at individual taxpayers with the purpose of updating the government's fraud-detection measures and eventually boosting the tax take. Only 13,000 taxpayers nationwide will be audited in this round, but if the process is like earlier IRS random audits, it promises to be especially grueling.

> More taxpayers will be targeted in 2008 and beyond.

> "You don't want to be one of those 13,000," said Blank Rome lawyer Ian Comisky, a tax expert based in Philadelphia.

> The IRS, in previous auditing initiatives, has demanded taxpayers back up every deduction, and likely will do so again, Comisky said. Auditors have been particularly hard-nosed and not inclined toward compromise. Such audits can take four to six months, and most taxpayers, unless their returns are very simple, likely will need professional help costing potentially hundreds if not thousands of dollars.

> "You are not going to want to be sitting there day after day with an [IRS] auditor," Comisky said. "It is going to cost you money, and you are not going to get it back."

> David Stewart, a spokesman for the IRS, declined to characterize the audit process. But he said the audits were essential for the IRS to learn more about the effectiveness of its audit techniques. All returns are rated as to the likelihood of inadvertent underpayment or outright evasion, and updating those standards is a key purpose of the random audits, he said.

> Fran Stump, an H&R Block accountant based in Arlington, Va., said her experience with one IRS random audit was very stressful. Such audits tend to be far more intimidating because the auditors limit contact to requests for information and give taxpayers and their representatives few opportunities to explain themselves, said Stump, who teaches a college-level course on tax preparation.

> "There is a big difference between compliance audits and regular IRS audits," Stump said.

> In one random audit in 2001, she said the IRS disallowed the bulk of a client's deductions for $5 weekly church contributions because she said she had made them in cash and could not provide backup.

> Although the IRS can in its random audits focus on seemingly tiny details or mistakes, Comisky said the agency typically in its general audits was looking for huge red flags, the kind that if repeated in multiple tax filings could result in a referral to a prosecutor.

> "If a return shows $60,000 in income and a $50,000 mortgage deduction, they are going to take a look," he said.

> Most taxpayers facing random audits should first consult with their accountants, Comisky said. He is usually called in if the taxpayer faces big problems - an enormous financial hit for underpayment or a criminal fraud investigation, he said.

> Costs for most taxpayers who need only to consult with their accountants likely would range from $500 to $3,500, Comisky said. But it could be much more if the problems are serious and a lawyer gets involved.

> The IRS announced its plans for the random audits in June and began sending letters to taxpayers earlier this month.

> The agency is calling its latest initiative a "compliance study." And while the results will be far from academic for the unlucky few who are hit with added tax bills and costs for professional representation, the purpose of the program is not so much aimed at raising money as it is to hone the agency's audit techniques.

> With the passage of time, tax-evasion techniques change, so methods to detect them need to be updated, the agency said.

> Such audits pose risks for taxpayers, to be sure, but they also pose political risks for the IRS. Audits in the 1990s triggered a backlash from taxpayers and their congressional representatives who felt they had been unfairly singled out. Yet it is also Congress that is pushing the IRS to sharpen its audit procedures, with the aim of collecting more of the estimated $290 million a year in unpaid taxes owed the government.

> The IRS said the latest round of random audits was an improvement over past audits, which comprised more than three times as many taxpayers. Moreover, the IRS maintains that some of the taxpayers selected for the audits will not have any contact with auditors, if the IRS can verify information on their returns independently.

> But most taxpayers caught up in the study will have to deal directly with auditors, the IRS said.

> Overall, said Comisky, the IRS is trying to get a better handle on trends in taxpayer compliance.

> "They want to update their computers," Comisky said. "They are looking for patterns and they are looking for what to put into these audits so that they can get better outputs."

[grasshopper]

Cool, Now, lets see if compliance issues are tax deductable at a "business cost"  Let the assholes hurt if they want to be bigger assholes.
  I guess incorporating is what these guys are after, get the small businesses to incorporate to gwet them into the system.