Tax Audits

Written by Lori Covington
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Worried about tax audits? In 2002, the IRS reconfigured its existing audit procedures, streamlining some processes and expanding on others. One priority since then has been that of attending to abusive tax shelters, finding and fining promoters and participants in trusts or corporations that were designed to return a larger tax savings than the participants' actual investment.

One abusive tax shelter known as "Son of Boss" has been recently singled out for attention. Participants who have been or may be assigned tax audits based on Son of Boss participation are being offered incentives to come forward and pay fines before June 21, 2004. Because abusive tax shelters have flourished in recent years, the IRS is especially interested in putting a stop to schemes that promise "investors" high tax profits.

Tax audits aren't necessarily complicated, and under new regulations, most are conducted with relative ease. In the simplest audit, the IRS reviews the information it already has without even contacting the taxpayer. Around 8,000 returns are audited without any contact from the IRS. "Correspondence audits" are also conducted simply, with taxpayers being asked to mail information needed by the IRS. The IRS expects to do around 9,000 correspondence audits in a year.

Tax Audits: New Names, New Rules

In "less intrusive" audits, the IRS checks around 30,000 tax forms each year, focusing on only selected portions of individual returns. Finally, the "calibration audit" is the line-by-line examination that strikes terror into the hearts of taxpayers: only around 2,000 of these audits (or "examinations") are conducted annually. The good news? Taxpayers are no longer required to substantiate every line of the return.

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