Good news - bad news. The good news is that even with electronic filing, the volume of returns makes thoroughly checking each return impossible. According to the IRS, if your income is $100,000 or less, you have a 1 in 100 chance of being audited, if you make a million dollars or more, a 1 in 11 chance. However, the bad news is every year they are increasing the audit rates, and they can match documents such as 1099’s to your return more efficiently. While they are getting bogged down with the new tax credits, etc., they are also "under the gun" to find more ways of increasing revenue to help the government pay for these credits.

The following categories of people usually have a substantially higher risk of being audited than others:

		Self-employed folks
		Businesses with few employees but many independent contractors
		Businesses with heavy travel and entertainment expenses
		Individuals deducting large amounts such as house mortgage interest with little income

NUMBER ONE on my list of Ways to Help Avoid Audits - Get Organized! Try to put all of your tax information in a filing cabinet or box. This will not only save you stress but will save you money, especially if you have to have your returns redone because you forgot part of your tax records. Having your information organized will also help you in the event that you get audited.

NUMBER TWO on my list - Report ALL taxable income!The IRS calculates probabilities of incorrect information as well as the probability of unreported income. According to what I have been told, when they receive your return, it is programmed into a computer which checks your figures against any W-2’s, 1099’s, or other income documents with your social security number on them. It also checks your deductions to see whether they are "in the ballpark" of others in your profession or income bracket around the country. If your figures look "too large" or even "too little", your return is flagged, and an auditor takes a look at it, especially if this is a business return.

Folks - the IRS is not stupid. If you report very little income with several children, or little self-employment income with large deductions, well, I suggest you had better be ready for an audit. Folks who deliberately claim the Earned Income Credit and now the First Time Homebuyer Credit when they do not qualify for it are being investigated, according to the IRS website. Consult a tax professional like MTL, and get your return prepared correctly.

NUMBER THREE is simply to be neat, accurate, and remember to sign the return! It is unreal how many folks forget to sign their returns which can cause an IRS red flag. The Memphis Tax LadySM (MTL) marks with a red pen where a client is to sign and date their returns helping to avoid this problem. Also, as the IRS does pay attention to sloppy returns and math mistakes, MTL makes sure your tax forms are accurate, neat, and organized.

Folks, if you have the deduction and the proof, then don’t let "the possibility of being audited" scare you. I have read and heard some CPA’s statements that the Office in the Home deduction can cause you to be audited. Well, I have a legitimate office in my home, and I am not about to pay more taxes because I’m scared to use it! I can provide them a picture of it if I have to, by golly! At least, that’s my opinion, for what it’s worth.

Remember... it is not unusual for an IRS audit to occur one-to-two years or more after your original return has been filed. MTL is open year round and is available if you need assistance. If you are a MTL client in the Memphis area, I go with you to the audit free of charge.

Sources for this article include Tracy Coenen, CPA, MBA, CFE, More IRS Audits on the Horizon, January 22, 2008, at allbusiness.com/…6365555-1.html.