Does e-filing reduce the risk of an audit?

Some tax preparation and e-filing providers may market their product as a potential safeguard against IRS audits. For example, TurboTax includes a page on its website devoted to the top five ways to avoid a tax audit, one of which is ensuring accurate figures with the help of a program like TurboTax. Such promotional materials appear to be effective to consumers and businesses alike, as the number of e-filed tax returns increased by 9 percent in the past year. 

According to the IRS’ data, around 8 million corporations and partnerships e-filed their income tax returns this past September. That number represents over three-quarters of all corporate and partnership returns that were filed during 2015.

Yet is e-filing really a tax strategy, or simply an easier way for the IRS to apply its audit triggers? Notably, the e-filing of Forms 1120 or 1120S is now required for large and mid-size corporations, typically defined as those with at least $10 million in total assets. E-filing is also required of partnerships with over 100 partners. 

As a law firm that focuses on IRS tax problems, we are well acquainted with how the IRS scrutinizes federal tax returns and selects them for audits. One method is computer scoring, where returns might be selected for an audit based on the score they were assigned by a computer. True, IRS personnel probably review the highest-scoring returns before selecting them for audit, but the fact remains that a computer electronically applied the initial score.

If your return has been selected for an audit, an attorney can help take some of the stress out of the situation. Instead of being put on the spot and asked to justify or reconstruct certain expenses, a taxpayer or business filer can rely on an attorney as a buffer. Our law firm has the experience to help you.

Source: Accounting Today, “E-Filed Business Tax Returns Rose 9% This Year,” Michael Cohn, Oct. 8, 2015

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