Increased IRS Tax Audits

The IRS recently announced the launch of a new project this fall intended to improve IRS methods for auditing individual tax returns. This new project, labeled the National Research Program, is in addition to the regularly conducted audits. The goal of the National Research Program is to improve audit efficiency and to pinpoint problem areas for the IRS.

This resurgence of audits is the result of the steady decrease in the number of successful audits over recent years; the IRS claims that the decrease is attributable to a lack of money to train new employees and the need to shift personnel from compliance departments to customer service. In 2000 approximately 618,000 individual tax return audits were conducted; this is about half the number of audits performed in 1999.

It is expected that the IRS will audit approximately 50,000 individual tax returns as part of the new project. However, only about 2,000 of these audits will be the traditional exhaustive audits involving an in-depth review of each line on the tax return. Thirty-thousand audits of a less intrusive nature are expected; these audits will be conducted in person, targeting certain sections of the tax return. The remaining audits will be correspondence-only audits.

The tax returns selected for the semi-random audit are expected to cross income levels as well as demographic borders. Although this new project is focusing on individual taxpayers, corporations and other entities are expected to be targeted in the future.

What should you do in the event of an audit? The best advice is to contact your tax advisor immediately and to say as little as possible to the IRS; it is unlikely you will be able to say anything that will help the situation.

— Leslie Heffernen

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