IRS INCREASES ITS AUDITS

The IRS is increasing their audit efforts. From my experience, this has more to do with the efforts of the IRS to find weak areas in taxpayer documentation rather than any kind of statistical analysis. The IRS is increasing its audits of middle-class Americans this year. The claims that it expects that most taxpayers under audit will owe and additional $4,100. That is more than a months wages for most American taxpayers.

Since 2000, the Internal Revenue Service has tripled its audits of taxpayers making between $25,000 to $100,000.

Last year, nearly 436,000 taxpayers in this income range were audited by the IRS. That is an increase of 147,000 since the year 2000. The chances of being audit went from 1 in 377 to 1 in 140 for the taxpayers which filed last year.

According to Kevin Brown, IRS deputy commissioner, said the audits "were out of whack" in 2000, with far too little attention paid to the middle class and to the very highest income generators, those making $1 million or more. "We try to run a balanced audit program," he said in a recent article.

However, if your income is over $100,000, the odds of being audited were even higher, 1 in 59; and above $1 million, 1 in 16.Even people in lower income brackets and earned less than $25,000 faced a relatively high chance of audit, 1 in 94.

According to the IRS, the focus of these additional audits on the middle class are more designed to let the public know that big brother is watching rather than tax collection. In my analysis, it is through this fear and intimidation that the IRS hopes to get taxpayers to comply with the tax code and not take aggressive deductions or deductions in which the paperwork is lacking. Most of the new audits will focus on small business owners since there is little or no independent reporting of such income and deductions.

Furthermore, Congress has not been willing to implement any of the IRS proposals regarding independent contractor verification and tax withholding of i/c payments. So the way things stand under the new guidelines, a small business owner filing a Schedule C is three times more likely to be audited than just a year ago.

With this in mind and knowing that the agents are being trained to look for false statements during return examinations, it is becoming a much more serious business to file a tax return with severe consequences if everything isn't completely accurate. Before filing, taxpayers should discuss at length the documentation requirements required by the IRS with a competent tax professional and then only file once they know they have the proper documentation to support the deductions claimed on the return