Tax Resolution Services: Fewer Audits in 2012?

  

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Fewer Audits in 2012?

Why the drop in IRS audits doesn't necessarily mean you're “safe”

A recent article appearing in USA Today reported that the number of IRS audits performed in 2012 is likely to be lower than in previous years, and the overall rate of audited tax returns may even fall below 1%—something that hasn't happened since 2006.

There are several factors involved in the reduced numbers of audits, including:

• Federal budget cuts
• An IRS hiring freeze
• Staffing reductions
• The increasing complexity of the tax code
• A rise in tax refund identity fraud

The shifting focus of auditing targets

While the overall number of IRS audits plateaued at approximately 1.1% for 2010 and 2011, the focus of audits has changed.  For example, there are now more audits conducted on the wealthy—specifically, those who earn $5 million or more annually.

Another area that's seen a shift is random versus targeted audits.  In recent years, the IRS has moved away from selecting tax returns at random to audit, and concentrated more on those returns that raise red flags.

What this means for you

It's easy to conclude that fewer audits overall means that you’re less likely to be targeted. However, if your tax returns seem suspicious to the IRS, you may actually have a greater chance of receiving the dreaded audit notice.

Placing greater attention on targeted audits has allowed the IRS to substantially increase its collections.  Since the strategy is working, they aren't likely to abandon it and return to more random audits anytime soon.

How to protect yourself

To reduce your chances of being audited, ensure that your tax returns are filled out as thoroughly and honestly as possible.  Also pay close attention to these several items that act as alarm bells to the IRS:

• Schedule C: The IRS tends to focus on sole proprietor business returns with income and expense figures that diverge greatly from similar businesses—either much higher, or much lower.
• High deductions: If you're claiming huge charitable donations, or deductions that are significantly higher than others in your income bracket, the IRS may be prompted to sniff around your records.
• Business vs. hobby: If you have multiple sources of income and one of them could qualify as a hobby, beware that the IRS may become suspicious and try to downgrade your secondary business to hobby status—which happens through an audit.
• Home office: Claiming a portion of your home as a dedicated business office is often seen as an immediate red flag. The small deduction you receive in return for this claim may not be worth the risk of attracting an audit.
• Earned income credit: In recent years, the IRS has cracked down on EIC filers, taking a closer look at most claims. This is due to a rise in EIC fraud. If you're claiming dependents on your tax returns, make sure you have the absolute right to do so.

No one wants to be audited.  But ultimately, if you do receive an audit notice from the IRS, it's in your best interests to retain a professional tax resolution firm to help you through the process.  To have someone from our A+ BBB Rated staff contact you, please fill out the form to the right or feel free to call us 24 hours a day, 7 days a week at 888-411-5389 (LEVY).

Remember,

"You want a LEVY on your side, not one against you!"