Bullis and Company CPA: Some thoughts about IRS audits
Submitted by Jeff Munson on Sat, 04/20/2013 - 9:33am
It’s great to have that income tax return filed! Maybe you can relax and take a deep breath now. But, what if IRS has questions or selects your return for audit?
The deduction for Office in the Home for the part of your home that is regular and exclusive business use is NOT an invitation to IRS to audit your return. There is even a “safe harbor” that can be used. IRS understands how important that home office is to many taxpayers-usually the sole owner business.
Some folks think IRS is more likely to audit the return that is filed electronically. That is not true. The electronic filing has reduced some of the common mistakes that used to generate IRS letters and inquiries.
I’ve heard some folks think filing a paper return (not filing electronically) may be less likely to be audited because IRS has to input information into their computers. I don’t think that is true either. The returns that are questioned and/or selected for audit usually have some entry that is unusual.
Does filing after April 15th, with an Extension of Time increase or reduce the likelihood of being audited. Probably not. Most returns being looked at closely by IRS now are for 2010 and maybe some for 2011. The 2012 returns will be processed and held until after Oct. 15th. Then the IRS will begin looking for which ones need more explanation or on the face of it seem to be not making sense.
There are a very small number of returns IRS selects for audit by true random sample. I hope you never have your return chosen that way. IRS verifies everything on the return and goes into great detail. They use the results of those random audits to decide if they should audit more barbers, waitresses, doctors, business owners, etc.
A few years ago, one of our clients suffered that random audit. The IRS visited the taxpayer’s home to verify the square footage of the business office (and all expenses). It turned out all was fine and IRS closed the audit with only a small adjustment for some meals expense as I recall. The problem was it took so long and so much time.
It seems every month or maybe every week there is a court case regarding what IRS calls frivolous returns. The “it’s not real money” or “not constitutional” or similar arguments are presented and routinely found erroneous by the court. Then in addition to the tax and interest, there are some big penalties assessed for “unreasonable” positions and “interfering with the tax laws”.
Only a small percentage of returns are audited each year. It’s just a bother, nothing to be feared or worried about.
Did you hear: “Never slap a man who’s chewing tobacco.” — Will Rogers
— John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.
