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Take our IRS audit quiz
By Kay
Bell • Bankrate.com
April 13, 2000 -- Do you know what might make
Uncle Sam take a closer look at your return? Find out by answering
our eight audit quiz questions.
If you prefer to test your knowledge before
seeing what the experts say, Click
here for the Tax audit quiz.
Or you can click
here to see all the questions and answers, plus an explanation
of the right answer.
Tax audit
facts and myths
- I don't make a lot of money, so the IRS
isn't going to be looking at my return closely. Probably true.
However, how you earn that money could make you an audit target.
The IRS looks at professions where a lot of income is in cash
-- like waiters and others who get tips regularly -- because it's
easier to hide cash payments from the IRS. High-income professionals,
such as doctors, often get a closer look, too, primarily because
the potential to collect a bit more in taxes is greater.
- I use a tax professional, so my return
is safe. False. Professional tax preparation is no guarantee,
according to Robert Nath, a Washington, D.C.-area tax attorney
and author of The Unofficial Guide to Dealing with the IRS.
"Do you know how many degrees you need to prepare taxes?
None," says Nath, who also operates his own Web site.
In fact, Nath says, using some professionals will definitely get
you audited. These folks are on an IRS watch list of preparers
known to generate false returns solely to collect client refunds
-- and bigger service fees for themselves.
- I never file for an extension because
the IRS thinks I'm using the extra time to concoct tax-saving
deductions. False. Timing of filing has nothing to do with
audits. Actually, extensions used to offer some audit protection,
says Eva Rosenberg, a Southern California enrolled
agent and the
Internet's www.TaxMama.com.
Years ago, she explains, the IRS selected all its audit targets
early in the tax season, so if you waited you were less likely
to make their list. "But they've wised up and now use the
total taxpayer data base when examining returns," according
to Rosenberg.
- I got a refund so that means my return
is clear. False. All that means, says Nath, is that the IRS
agrees with your math. The agency still has three years from the
time you filed to examine your return if it comes across information
that makes examiners suspicious.
- Itemizing deductions instead of taking
the standard one will get me audited. Not a sure "True,"
but itemizing could certainly increase the possibility, especially
if the deductions are large in comparison to your own income,
or out of line with the national averages. Filers who go to the
trouble of filling out a Schedule A do so expressly to pay less
tax. And some of them are sloppy in their documentation, meaning
a double check by the taxman -- and no substantiation of a deduction
-- could get the government a bit more money.
- If I declare a business loss on a return
I'll be audited. Probably true. Filing a Schedule C, especially
one that reports a business loss, will very likely increase your
audit chances. Again, the key here is to make sure that your losses
and expenses can be documented.
- If I file an amended return to get a
refund or more money back, chances of audit go up. Probably
true. Why? You give the IRS a chance to have another set of eyes
review your tax data. Plus, asks Nath, do you think they really
want to give money back?
- I never use the pre-printed label because
some are randomly coded to mark the return for audit. False.
If you fell for this myth, Nath suggests you see a professional
immediately -- not a tax pro, but a mental health expert for treatment
of your paranoia!
-- Posted April 13, 2000
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