Test your audit IQ:
Tax audit fact vs. myth
By Kay Bell • Bankrate.com

Do you know what might make Uncle Sam take a closer look at your return?

Find out by answering these eight questions.

Tax audit facts and myths

1. 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.
   
   

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2. 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.
   
   
3. 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.
   
   
4. 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.
   
   
5. 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.
   
   
6. 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.
   
   
7. 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?
   
   
8. 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 Feb. 14, 2001