Asian Journal- The Filipino-American Community Newspaper

IT’S purportedly every taxpayer’s nightmare: the IRS knocking at your door for an audit.

For some, it could create commotion and distress. However, at a time like this, composure and common sense will be your best ally.

Discuss the situation with the professional tax preparer who helped you with the return(s) in question to understand the issues the IRS is focusing on. The golden dictum is "don’t give any more information than what they are asking you for". Answer their question only.

After thorough evaluation and it turns out your situation is far more complex, you might need to get professional assistance either from a certified public accountant or a tax attorney.

Here are interesting facts from the IRS:

Less than 1.4 million individual returns were audited on 2007. That translates to a little bit over 1percent of all returns filed.

21 percent of those audits were to individuals with an income higher than $100K, the remnant (79%) was to individuals with incomes lower than $100K.

The amount of individual returns audited for incomes lower than $100K only rose by 10% last year. Audits for individual returns with income greater than $100K increased by 13.7 percent and for incomes greater than $200K the amount of audits increased by 29 percent So the pressure is increasingly on individuals with higher income.

Scrutiny will also be higher for self-employed individuals (S-Corporations, Partnerships) because income to these individuals is not reported independently to the IRS. No amount of taxes is withheld from their paychecks.

How does the IRS pick a return for audit? One way is through the use of a sophisticated computer program that scores tax returns. The ones with the highest scores have the greater chance of being audited.

The common red flags in an income tax return include the following:

Incomplete or sloppy returns - Math errors and missing information prompt scrutiny, as you’d expect. If the IRS computer can’t make sense of what you’ve filed, a human has to check to find the mistake. This is one reason to file electronically: computers help to catch bonehead errors.

Unreported income -This is a no-brainer. If you file a return but fail to report income received, you’re heading for trouble. All of your interest, dividends, and miscellaneous income must be reported. Remember: everyone who sends you a 1099 is also sending one to the IRS.