IRS - SELECTION OF AUDITS
Each year someone asks the question: How does the IRS determine which returns get audited? It is rumored that only 12 key IRS employees know the exact details about how the IRS makes this determination. Among the accounting and tax profession there is an ageement that there are certain aspects of a return that will trigger an audit:
... An unusal sum of money claimed for a deduction, such as $35,000 for business entertainment expenses
... Relative size of deduction versus income, such as $8,000 in travel expenses and $16,000 in income
... The nature of a deduction as compared to a taxpayer's occupation, such as a large deduction for business entertainment for a college professor
... Reporting a deduction in a manner that improperly benefits, such as deducting meals and entertainment (that are subject to restrictions) as a business advertising expense
... Contradictions between deductible items, such as a deduction for mortgage interest but no deduction for real estate taxes
Altough the exact variations from the norm that actually trigger an audit have never been public knowledge, the information is stored in the IRS computers and is developed from detailed audits of randomly selected tax returns every three years.
As I have always told my clients - never fear an audit if you are doing the right thing. It may be inconvenient but should never cause you to shake in your boots.
