- The Washington Times - Friday, February 11, 2005

Taxpayers should prepare for more IRS audits as a result of President Bush’s proposed budget.

The budget, released Monday, calls on Congress to give the Internal Revenue Service an additional $500 million, or 8 percent, to step up enforcement in the next fiscal year.

The money would be used to audit more taxpayers and force more individuals and businesses to pay back taxes.

“Particularly in a time of deficit reduction, funding IRS enforcement is a wise investment,” said IRS Commissioner Mark W. Everson.

Taxpayers who earn more than $100,000 per year stand a 1-in-20 risk of an audit, which means Washington-area residents would have greater risk than people in many other places.

Nearly 22 percent of Washington-area households earn more than $100,000 per year, compared with 12 percent nationally, according to the U.S. Census Bureau. Median household income in the Washington area was $57,291, according to the 2000 census, compared with $41,994 nationally.

Mr. Everson said IRS enforcement is becoming more aggressive.

In 2004, individual taxpayer audits surpassed 1 million for the first time since 1999. The agency pulled in a record $43.1 billion in revenue from enforcement, up 15 percent from a year earlier.

Although IRS audits are increasing, they still fall below the rate of the mid-to-late 1990s.

In fiscal 2004, the IRS audited 0.77 percent of individual taxpayer returns, which was 0.65 percentage points more than 2003 but 1.67 percentage points lower than 1996.

Congress is giving initial indications that it supports the president’s proposal for more tax enforcement, especially since some lawmakers have criticized the IRS for failing to catch enough tax cheaters.

Tax-preparation services say taxpayers should consider themselves forewarned and take action to protect themselves.

To prepare for a possible audit, “Make sure that you have included all of your tax reporting and income documents, such as W2s, 1099s, etc., in your return and retain those records,” said Gloria Huffman, analyst for Liberty Tax Service. “Keep a logbook of any business mileage and expenses to substantiate any deductions.”

After an audit, defending against an IRS inquiry is more complex but still manageable, according to tax preparers.

“There are no sure-fire ways to avoid an audit,” said Mark Steber, vice president of tax resources for Jackson Hewitt Tax Service.

He offers the following tips to anyone who is audited:

• Always provide clear, concise answers and documentation. Include copies of your documents.

• Never send in originals without making copies.

• Be timely with your response. Most notices and inquiries from the IRS have a deadline. It is important to be aware of that deadline and respond promptly to prevent an escalation.

• Consider using registered mail with your responses to document your communications.

• Be aware that the IRS usually is looking for simple answers to simple questions. It is often easy to provide the information and resolve the matter quickly. For more complicated situations, it is best to hire a professional.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide