Which has less chances of IRS audits – paper or e-file?

BEING audited by the IRS is dreaded by most taxpayers. My clients constantly asked which method increase their chances of getting audited. Let’s compare two methods of filing your tax returns:

• Old method of manually preparing and mailing your tax returns via post office.

• Newer method of electronic software and efiling tax returns via IRS website.

First, Let’s Look At Error Rates.

• The error rate for paper returns is 21 percent.

• The error rate for electronic returns is less than one percent.

Paper Filing:

• There are more mistakes in paper filing which increases your odds of getting audited.

• Paper filing guarantees that a person looks at your return.

• A person is more likely to flag something than a computer.

• IRS uses its computer infrastructure to target returns with audit potential.

• Less than half of manual returns are put into this algorithm for red flags.

E-Filing:

• The error rate for electronic filing is minimal; therefore, it has less chances of being audited.

• But IRS can data mine e-filed returns to identify those with risk indicators.

• IRS can use its computer infrastructure to target efiled returns with audit potential.

• E-filing increases your exposure because it’s instantly analyzed for discrepancy.

• Less than half of manual returns are put into this algorithm for the IRS to flag. 

Which One Is Better For You?

• Tax preparers are divided between these two schools of thought.

• Some suggest that e-filing is a quicker way to get audited because of efficient IRS algorithms.

• Some suggest that it takes more time to audit paper returns because they sit on the shelf longer.

• But some indicate that paper returns incur more errors and have likelihood of getting audited.

• Confusing? Yes, it is.

• I almost always give my readers direct advice, but not on this one.

• I’d like you to read these bulleted points again and discuss this issue with your tax preparer.

• This gives you a reason to say hello to your tax preparer.

• Suspense isn’t that bad. I know that you enjoy suspense once in a while.

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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.

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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies.  He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at vicsy@live.com.

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