Just Who Gets Audited Anyway?

Just how does the IRS decide who gets audited? According to the IRS, taxpayers are randomly selected; however, if you look into the actual statistics, you might be surprised!

A recent article in Smart Money magazine reported that the IRS actually uses a computer program which scans every return and then assigns it a score indicating the likelihood of questionable items.

Taxpayers who file a Schedule C, those taking home office deductions using Form 8829, those who rack up large losses for many years, and those filing an estate tax return are more likely than the average Form 1040 filer to be visited by the tax man.

Certain types of businesses seem to be on the IRS hit list as well including service providers, restauranteurs, clothing store operators, telemarketers, and traveling sales people.

The Research Institute of America is a tax information publishing company that has calculated averages for major categories of deductions based on adjusted gross income. Although the IRS will not admit to anything, apparently if your deductions are outside of these averages, your return is more likely to be investigated.

Here is a peek into what they report.

Yearly Income     Taxes Paid     Contributions      Percent Itemizing
$0-15,000.00       2,555.00           1,097.00                 4%
$15-30,000.00     2,270.00           1,338.00                16%
$30-50,000.00     3,112.00           1,465.00                41%
$50-75,000.00     4,429.00           1,768.00                69%


According to former IRS officials, there are two other methods that the IRS utilizes to target returns for additional review.

One method is called the Related Examination is when someone you do business with gets audited. Chance Audits are the second method used and these can come about when an angry ex-spouse or former employee decides to report you to the IRS as a potential cheater in hopes of ruining your life. Which, of course, is something the IRS is always capable of doing!

Please be sure to claim all income on your tax forms and be prepared to prove any expense that you claim.

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