IRS to Conduct Random Audits

The Internal Revenue Service has announced plans to launch a new National Research Program (NRP) reporting compliance study for individual taxpayers that will provide updated and more accurate audit selection tools to reduce the nation's tax gap. The study will begin in October of 2007 and examine approximately 13,000 randomly selected tax year 2006 individual returns from various income categories. Similar sample sizes will be used in subsequent tax years.

The initial group of taxpayers whose returns will be selected for audit will start receiving official letters in October informing them that they are part of the research study. The majority of taxpayers will undergo an in-person audit. Instead of the line-by-line approach, the IRS will gather data from its records beforehand and then focus only on certain portions of the return. These examinations will consist of more detailed questions than in regular audits. A portion of the individuals who will have their returns inspected will never meet an auditor. Instead, the IRS will require explanation for specific return entries through correspondence. Some tax filers chosen at random will not even know their returns are being audited. These taxpayers will not be contacted if the IRS can obtain matching and third-party data that confirms the accuracy of the return.

This upcoming round of audits may devote special attention to capital gain taxes. IRS officials believe that many investors inflate the price that they originally paid for stocks and securities to report lower capital gains. President Bush and members of Congress have proposed legislation that would require financial service companies to report what investors pay for stocks and securities.

If you happen to be one of the unlucky taxpayers picked at random, organization is strongly recommended. Do as much as you can ahead of time. Take the time to organize your pay stubs, bank and credit card statements, and expense receipts. If you can not find all of the necessary paperwork, you should be able to get duplicate copies from your bank, credit card company, etc. If you can support all of your deductions, you will save money.

Find out how our Boston Accounting Firm can add value to your business. Email us or call us at 1 (888) 875-9770.

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