The Next Audit Scare
The IRS Is Planning to Revive Its Random-Audit Program
In Hopes of Foiling Tax Cheats; What to Do if You're Chosen
Random tax audits are coming back.
Beginning this fall, the Internal Revenue Service plans to revive a once-controversial practice of randomly targeting thousands of taxpayers for audits, even when the agency has no reason to suspect them of wrongdoing. IRS officials expect the tax probes to provide fresh data to update the top-secret formulas the agency uses to help select which returns to audit and thus enable it to do a better job of combating tax-dodging.
The first wave of random audits will start in October and target about 13,000 income-tax returns for the 2006 tax year, selected from various income categories. Full storyhttp://online.wsj.com/public/article_print/SB118169532238233324.html
The IRS Is Planning to Revive Its Random-Audit Program
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Flyingifr
Just to clarify what this type of audit is about:
The IRS principal computer program that is used to identify returns selected for audit compares each return to an algorithm called the Discriminant Information Function (DIF). The data that is used to compile the DIF comes from these random audits, and these audits are called Taxpayer Compliance Measurement Audits (TCMP).
The data from the TCPM is used to create a "base line' that has been verified as accurate through the intrusive TCMP audits. There is absolutely nothing a taxpayer can do to minimize the chances of a TCMP audit other than not file. The information gathered is chewed up by the IRS computer in a method that is a well guarded secret and is used to create the DIF.
When a taxpayer files a return, it is compared to the DIF. The more the return varies from the DIF, the more whistles and bells go off. When enough whistles and bells go off the computer spits out the return where a human being reviews the return for audit potential. The human being makes the final audit decision.
the DIF assembles statistics in income bands (Income of $50K to $75K, for example) and shows the various amounts of the various deductions proven for that income band, among other data variables.
The IRS principal computer program that is used to identify returns selected for audit compares each return to an algorithm called the Discriminant Information Function (DIF). The data that is used to compile the DIF comes from these random audits, and these audits are called Taxpayer Compliance Measurement Audits (TCMP).
The data from the TCPM is used to create a "base line' that has been verified as accurate through the intrusive TCMP audits. There is absolutely nothing a taxpayer can do to minimize the chances of a TCMP audit other than not file. The information gathered is chewed up by the IRS computer in a method that is a well guarded secret and is used to create the DIF.
When a taxpayer files a return, it is compared to the DIF. The more the return varies from the DIF, the more whistles and bells go off. When enough whistles and bells go off the computer spits out the return where a human being reviews the return for audit potential. The human being makes the final audit decision.
the DIF assembles statistics in income bands (Income of $50K to $75K, for example) and shows the various amounts of the various deductions proven for that income band, among other data variables.