IRS audits not always random: Some tips on reducing risk

Any fans of Monty Python out there? There are certainly a few in the Washington, D.C., area. If you are, you may remember one notable skit by the British comedy troupe called "The Spanish Inquisition." The catch phrase of the skit is, "No one expects the Spanish Inquisition!" What follows is a skit-derailing explanation about what makes the inquisition so scary. It's one thing. Fear. No, it's fear and surprise. No, rather, it's fear, surprise and ruthless efficiency.

You know, except for that last item, those seem to be the same tactics that make audits by the Internal Revenue Service so scary. Few people expect to be audited by the IRS. When they do get word that they are being examined, the tactics that follow are often fear and intimidation. And while there may be some efficiency evident, officials are usually more just doggedly persistent.

The aid of an attorney can help when such conditions are in play. Shy of that, it can help to do all one can to avoid raising the warning flags that tend to trigger audits in the first place. Here are a few to be aware of, especially if you're self employed.

  • Be sure to attach 1099 forms to returns and that reported income and figures in those forms match up.
  • Inflating home office deductions. Try to deduct all utility costs and you'll send up an audit flare.
  • Claiming year after year of losses. Too much red ink may make the IRS eyebrow go up.
  • Sudden increases in, or higher than usual, charitable donations. The norm is expected to be about 3 percent. Get and save receipts to back up such claims.

Some returns get audited on a random basis. More often, the IRS is looking for discrepancies. Anyone facing an audit, or seeking to appeal an audit, should contact an attorney experienced in tax law.

Source: WXIX-TV, "Red flags for an IRS audit," Feb. 7, 2013

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