Blog for John Sweeney - Elder, Wills, Estates, Trusts, Special Needs, Business, & Tax Lawyer in CT and NY

How Does the IRS Select Returns for Audit?

Posted by John Sweeney | Sep 11, 2014 | 1 Comment

How Does the IRS Select Returns for Audit?

1. The Machine.  The IRS reviews most returns by computer.  They give returns numeric scores based on certain items which may be high, out of line, or questionable.   They have an algorithm which can identify the returns which have the highest potential to have a successful audit.  Most audits come from this process. There you go, blame it on the machine again.

2. Matching Information.  The IRS matches up all those pieces of paper everyone files.  1099's and W-2's mostly.  If what is reported on the paper doesn't add up to what you have on your return, you will probably get a note from your friends at the IRS.

3. Tax Shelters.  People with tax shelters or other tax avoidance transactions are ripe for audit.  The IRS now spends time identifying promoters and participants in tax shelters.  Once they find a tax shelter, they generally get the records and audit everyone involved.   If you are going to use tax shelters….better add in the cost of defending the tax result in your ROI.

4. Bad People Around You. Your return can get audited when they involve issues and transactions with others who had their own issues with the IRS.  They go looking for related parties.   Remember, bad apples poison the barrel.

So, hang out with good people, don't invest in tax shelters, make sure you have all those little pieces of paper, don't piss off the machine, and you won't get audited.

About the Author

John Sweeney

John is an experienced lawyer who helps you solve your problems. He practices Elder, Wills, Estates, Trusts, Special Needs, Business, & Tax Law in Fairfield County CT and Westchester County New York. He brings a wealth of experience in law, business, tax, insurance, and finance to arrive at practical solutions with compassion and care. Honest, direct and practical, he is focused on you and your problems. He also brings a wealth of personal experience from his own large family and aging parents.


Esthefany Reply

Posted Mar 15, 2015 at 16:37:59

I was teaching, p/t, when Bruce steartd our business. I quit teaching a year later and he turned over all of the finances to me, corporate and personal. I never met a tax form of any kind that wasn’t out to get me, so I knew I needed help.I use QuickBooks Pro for the business: I pay the the p/r tax liabilities when QB tells me how much for each; run all of the quarterly payroll tax reports, myself; and run the two reports the CPA wants at the end of the year.For our personal taxes, I learned Excel and set up spreadsheets. The main one lists all contributions, medical expenses, professional fees, utilities, interest paid, and so on, by month, with totals at year end. I put the documents (receipts, etc.) that feed the spreadsheet into monthly folders; periodically, I go through the folders, my check register and credit card bills, all a month at a time. It’s less confusing to do a whole month at a time than as I go, and doesn’t take too many hours, at all, to do it that way. I usually end up doing a quarter at a time, spending not more than a couple of hours for each month’s data.It took a couple of years to get everything the accountant needed onto the spreadsheet, but boy, has it paid off. Each of the last two years, I’ve been ready to meet with him before the end of January. And then I’m done.One caveat: Do make sure you have a good CPA/tax accountant. We steartd with a man who apparently got all of his training from a well-known organization that trains people to do prepare tax returns. He held himself out as a small-business specialist and a tax accountant, but he made some really big mistakes. We switched to someone Bruce had known in school before she earned her CPA license; nice woman and no doubt a good accountant, but weak on taxes. Her now-former partner, however, is an excellent CPA who really knows his tax stuff.Oh—estimated taxes: Mr. CPA tells me each year what percentage of our draws to set aside in a holding account—just a basic checking account, at first—so that the money is there for the tax payments, when they come due. Late last year, Bruce told me about some online banks, and I went with EmigrantDirect online, which offers a savings account. It’s currently paying 4.5%. Try getting that at your bank!I know this is long; hope it’s helpful.

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Elder, Wills, Estates, Trusts, Special Needs Tax & Business Law; Attorney John Sweeney

Sweeney Legal, LLC, provides legal, practical, and business counsel to Seniors, families, and businesses in the Fairfield, Connecticut area, including the communities of Bridgeport, Bethel, Brookfield, Danbury, Darien, Easton, Fairfield, New Canaan, Newtown, Norwalk, Redding, Ridgefield, Stamford, Weston, Westport and Wilton. John is also licensed in New York serving Westchester County including the towns of Bedford, Lewisboro, Mount Kisco, North Salem, Pound Ridge, and Somers.