15 Ways To Get Audited By The IRS

15 Ways to Get Audited
15 Ways to Get Audited

While there are reports circulating that the IRS’ budget has been slashed and audits are going down, there are still many sure shot ways you can get yourself audited by the IRS.  Forbes.com list the 15 most common ways to invite an Audit by the IRS:

Be Super Wealthy

This may seem like a “duh” moment. But the IRS finally is increasing the percentage of really rich people it audits, on the reasonable theory there’s a lot more potential to uncover big dollars owed. It even has special “wealth squads” looking at all their holdings.

Hide Offshore Accounts

It’s not illegal for U.S. taxpayers to have accounts in Switzerland or Hong Kong or some Caribbean island. It’s only illegal not to declare them or their income. Ask the ex-clients (some now convicts) of Swiss banking giant UBS.

Be a Tax Protestor

Let’s be blunt. The IRS simply does not like it when you claim you owe no taxes because the income tax is illegal or only applies to weird income categories that don’t apply to you. Such wacky theories landed actor Wesley Snipes in jail.

Claim Huge Charitable Contributions

Rules require complete before-you-file documentation of your gifts to nonprofits. The IRS’ use of correspondence audits, in which it demands you mail in the documents backing various deductions, makes claims of substantial contributions a tempting target.

Omit Some Reported Income

IRS computers are very good at matching all the little pieces of paper you get reporting your income with what you put on your 1040. These papers include employer W-2s and independent contractor, brokerage and bank 1099s.

Take a Big Home-Based Business Loss Every Year

The IRS presumes that a Schedule C business losing money three years out of five is not necessarily all that legitimate. You might have to produce evidence of a profit motive.

Claim a Loss On a Hobby

By definition, a hobby is not pursued for profit. But that doesn’t stop some taxpayers from trying to write off expenses for their dog showing, comic book trading or other “business.”

Use a Sleazy Tax Preparer

The IRS’ efforts to regulate all paid tax preparers were just shot down by a federal judge. But that doesn’t stop its ongoing campaign to ferret out and shut down the sleazy ones. When the feds get onto a tax pro playing fast and loose, his or her clients become easy target

Write Off Big Unreimbursed Employee Business Expenses

They’re only deductible beyond 2% of adjusted gross income. The IRS may use a by-mail audit to ask for back-up paperwork, thinking you are trying to write off ordinary work clothes, commuting costs and other not-allowed items.

Take Deductions In Round Numbers

The world is an uneven place. So if you file a tax return taking deductions ending in lots of zeros, the IRS might think you don’t have the required paper backup. You risk an audit by mail.

Make Math Errors

IRS computers are programmed to check your math. Returns with errors can invite scrutiny that might trigger more IRS requests for back-up information.

Brag A Lot

Laws require the IRS to pay minimum rewards for tips in cases that result in big collections. The neighbor overhearing your expansive claims may become a government informant.

Anger An Ex-Business Partner, Employee or Spouse.

They might blow the whistle on you too. And it’s possible they won’t do it just for the informant’s bounty.

Make Careless Mistakes

These can include not signing a return, leaving off your Social Security number or miswriting it. All are red flags.

Fail to File On Time or at All

The IRS has a special program that will generate a substitute return using W-2 and 1099 paperwork. Don’t expect it to allow your deductions.

Source: Forbes

5 Tips for Avoiding an IRS Tax Audit

Tips To Avoid An Audit
Tips To Avoid An Audit

IRS audits are feared for good reason: at best, they’re disruptive, and at worst they can cost you vast amounts of money. Though the percentage of audited returns is relatively low, every year the IRS still audits a huge number of returns. Following these tips can help you reduce the chances you’ll end up as one of their targets. 

Be Diligent With Business Deductions

This primarily pertains to the self-employed and business owners. While it may be tempting to write off your apartment as a home office or your car as a business investment, the IRS has careful formulas for determining whether or not particular expenses are deductible. For instance, only the part of your home used exclusively counts towards the home-office deduction—meaning writing off too much square footage could get you noticed. Car expenses, likewise, must be carefully calculated. If you’re thinking of writing something off,  you should do some research or contact a tax professional.

Keep Everything

No, not “everything” as in money. “Everything” here means documentation, like receipts, pay stubs, leasing agreements—really, anything that might be slightly relevant during tax time. Tax returns gets much more difficult to complete when you’re missing documents–and complications could lead to you miscalculating a deduction or forgetting to declare an income source. And, in the unfortunate event of an audit, you will need all of your documentation to verify your deductions.

Choose Your Professional Wisely

Many people, especially those with complicated tax situations, hire tax professionals to help take the headache out of tax season. But according to MSN Money, choosing the wrong tax “pro” can be disastrous.  So, when picking a tax preparer, check out their track record, customer reviews, how long they’ve been in business, their Better Business Bureau standing—just do your homework, as you would when hiring any other type of professional.  R&G Brenner currently has an A+ Rating with the BBB

Pay Quarterly Taxes (If Necessary)

If you’re self-employed, the IRS expects you to keep up with your tax obligations throughout the year. This means not only filing an annual return, but also paying quarterly taxes if a certain proportion of your income comes from self-employment. It’s especially vital for the self-employed to keep up with their taxes because they have no employer withholding income taxes or chipping in on Medicare and Social Security taxes. Some tools you can use to keep up with your quarterly taxes are Form 1040-ES, which can help you determine if you need to pay quarterly taxes, and the Electronic Federal Tax Payment System, which you can then use to pay quarterly taxes. 

Electronically File

Depending on the system you use, electronic filing (e-filing) can have several advantages: less paperwork cluttering your desk, easy deduction-tracking systems, built-in calculators, and so on. But perhaps the biggest advantage is that, according to the IRS, e-filed returns have an error rate of only 1%, compared to 20% for paper returns. And if there is an error, e-filed returns can report back to the sender much more quickly, hopefully allowing them to correct the problem.  Furthermore, the IRS & states like NY require all tax returns to be e-filed unless you have a legitimate excuse for not filing electronically.  If they don’t like your excuse, they can fine you.

These tips are general, but every taxpayer’s situtation is unique. For more help, the IRS website—while sometimes complex—has resources for just about all tax situations. You can also talk to an R&G Brenner qualified tax professional to help you navigate the nuances of the tax code.

Volunteer IRS Sites Prepare 50% of Tax Returns Incorrectly

VITA Sites Still Preparing Tax Returns Incorrectly
VITA Sites Still Preparing Tax Returns Incorrectly

In a follow up to a report by the Treasury Inspector General for Tax Administration (TIGTA), free income tax preparation sites have made no significant gains in increasing the accuracy of the tax returns they prepare. The new report states that Volunteer Income Tax Assistance sites (VITA) who prepare income tax returns for low/moderate-income, elderly, disabled and limited-English-proficient taxpayers are still filing approximately 50% of tax returns incorrectly!

Of the 39 tax returns prepared for auditors during the 2013 filing season, 20 of them (or 51 percent) were prepared correctly, while 19 (or 49 percent) were prepared incorrectly. That represents a two-percentage-point increase over the 49 percent accuracy rate for the same number of returns in the 2012 filing season. The 19 incorrect tax returns resulted from incorrect application of the tax law, insufficient requests for information during the intake and interview process, or lack of adherence to quality review requirements.

While this is a small sample of the 3.3 Million tax returns prepared by over 90,000 volunteers across the country, it is still nonetheless troubling that TIGTA continues to find these types of accuracy related problems 2 years later due to “incorrect application of the tax law, insufficient requests for information during the intake and interview process, or lack of adherence to quality review requirements”.  TIGTA recommends–and the IRS agrees–that all volunteer instructors, return preparers, quality reviewers and site coordinators complete intake/interview and quality review training annually.  I am not sure what is more head scratching: that so many returns are being prepared incorrectly, or that these volunteers have receiving little to no training over the past two years since this problem came to light.

The VITA system is supposed to be helping those that are the neediest as a) they cannot afford professional income tax preparation and b) they need their refunds essentially to live.  In theory this is a vital service that needs to continue.  In practice, how do you motivate volunteers to devote more of their time (and possibly money) for training & licensing to put out a better product, yet receive no compensation? Furthermore, it sort of defeats the purpose of “helping” these taxpayers if their return is prepared incorrectly which potentially opens them up to delayed refunds, audits and penalties/interest. The old adage “you get what you pay for’ apparently applies here.

If you have had your return prepared at a VITA site, please let us know about your experience in the comments section below.  Plus, if you’ve had your return prepared in the past 3 years at a VITA site or any other tax establishment, and would like it checked for accuracy, contact an R&G Brenner professional today for a no obligation consultation, and we will review them for FREE!

Source: Accounting Today

What Triggers An IRS Audit?

Avoid Audit Red Flags

Nothing brings on the cold sweats like an official letter from the Government; particularly the IRS. Like being pulled over by the police while driving, thoughts of everything you have ever done (or may have done) wrong begin to flood your mind. There are two different classes of IRS Audits: Correspondence Audits & Desk Audits.

A Correspondence Audit is by far the most common type of audit the IRS issues to Taxpayers. These are generally the lowest level of an audit and usually involve small amounts of money. Verification of income & expenses are done almost completely by Mail or Fax and you may never even speak to your auditor. Conversely, A Desk Audit–or Office Audit–is when the IRS directs a taxpayer to an IRS office for an in-person interview. These generally involve larger amounts of money.

Regardless of what type of Audit a taxpayer receives, thoughts of asset seizures and/or jail time are common worries. However, being locked up or having your bank account seized are very rare. Usually, the punishment is simply the difference in tax calculated in the IRS’ favor, accompanied by a late payment penalty and interest. If a taxpayer can’t pay the penalties and taxes immediately, the IRS will usually accept a payment plan; as long as payments are made there is no need to worry that bank accounts will be raided or assets liquidated. Nevertheless, the stress and burden of the taxpayer to produce the documentation if very real. If fact, the Taxpayer Advocate wrote that Correspondence audits are not necessarily less work for the taxpayer. While there is no sure fire way to eliminate your chances to being audited (the IRS & States issue many random audits a year), there are many Red Flags a taxpayer can avoid to reduce their chances of being audited:

1. Not Reporting All Of Your Income: The IRS cross checks your income sources with 1099s and W-2s. If your income has dropped, that may be a red flag. Do not under report your income, no matter how tempting. If you have some self-employed income, report it and then use every deduction or write off you can find.

2. Claiming Large Charitable Deductions: The IRS calculated what the average donation is for a person in your income bracket. So if indeed you made a large donation last year be sure to have proper documentation. A cancelled check will do if the amount is under $250. Over that amount, you will need a letter from the charity.

3Earning A Bunch Of Money: Over $100,000. You are 5 times more likely to be audited if you make the big bucks so be sure to document all of your deductions and income.

4. Taking Higher Than The Average Deductions: If the deductions on your return are disproportionately large compared to your income, the IRS audit formulas will go “tilt”. So if you have large medical deductions be sure you can prove them if need be.

5. Home Office Deduction: The IRS is always interested in this deduction, because history has shown that many people who claim a home office should not. If you work out of your bedroom or dining room, the deduction may be invalid.

6. Business Meals, Travel And Entertainment: Schedule C is filled with tax deductions for the self-employed individual. And the IRS has figured out that often some self-employed individuals tend to claim excessive deductions. They then make the assumption that all such individuals may cheat so Schedule C will get a review.

7. Claiming 100% Use Of Your Car For Business: If you are self-employed and use your car for business be honest with how much you actually use the car for business. Keep very good records of the miles you drive. I know it’s a nuisance, but necessary.

8. Cash Businesses: If you have a cash-intensive business like an antique shop, junk shop, car wash, a bar, a hair salon, or a restaurant you are probably on the IRS’ short list! Whenever a lot of cash is involved, the assumption is someone is slipping some under the table!

9. Large Cash Transactions: The IRS requires reports to be filed for cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses.

10. Math Errors: If you do your tax return in long hand, check your math and be sure to sign the return and put in the correct social security numbers. A sloppy return can trigger an audit.

Doing a tax return yourself is almost never a good idea.  Having a professional with many years of experience preparing tax returns can help reduce your chances of being audited even more by avoiding common errors do-it-yourselfers make.  If you’d like more information about how R&G Brenner can help you, please contact us here.

Source: CBS

IRS Plans To Increase Audits Of Small Businesses

IRS To Increase Small Business Audits

The IRS recently announced that it plans to increase audits of small businesses in the hopes of closing a $450 Billion gap.  This announcement is interesting because it come on the heals of a recent report that most audits of small businesses turn up nothing.  The eight significant audit areas the IRS will be concentrating are:

1. Fringe benefits. The IRS is completing its final year of research on employment tax compliance. Early findings from these audits indicate that employers are not reporting employees’ personal use of company vehicles on Forms 1099 or W-2. Look for the IRS to investigate the use of all company cars, especially luxury autos, in its audits.

2. High income/high wealth taxpayers. The IRS defines high income/high wealth taxpayers as those who bring in a total income of more than $200,000 a year. Total income includes all gross receipts and sources of income before expenses and deductions. Through 2013, the IRS will focus on taxpayers with a total positive income of more than $1 million who file a Schedule C business return. Last year, the IRS audited 12.5% of all individuals with incomes of more than $1 million, a significant increase from 8.4% in 2010.

3. Form 1099-K matching. The IRS announced that it will start Form 1099-K matching in late 2013. The IRS provided a reprieve from merchant card reporting on business returns for 2011 Schedule C and Forms 1065, 1120S and 1120; however, the IRS plans to change its approach after 2012 returns are filed. The IRS has indicated that it plans to pilot a business-matching program that can address a large amount of small business noncompliance.

4. Credit for small business employee health insurance. This credit, first available on 2010 returns, is now coming under IRS scrutiny. The IRS will examine small business employers and for compliance with eligibility requirements.

5. International transactions. The IRS will continue to focus on the international tax gap. The IRS’ third voluntary initiative for foreign bank account reporting is under way, and the IRS will be looking to aggressively pursue taxpayers who hide assets overseas. The IRS will also focus on offshore transactions for large and small businesses.

6. Partnerships. This is a new area of emphasis for the IRS. Expect the IRS to target large loss partnerships and specific abuses that emerge from early findings in this project.

7. S corporations. The IRS is interested in S corporation audits in which losses are taken in excess of basis on shareholder returns. The IRS will review basis computations in these audits to determine whether tax preparers are properly completing due diligence requirements before deducting losses on Form 1040. The IRS is also interested in the use of S corporation distributions to avoid payment of Social Security taxes. The IRS will focus on S corporations with income, distributions and little or no salary paid to officers.

8. Proper worker reclassification. Almost all business audits also include employment tax issues. In particular, the IRS is interested in worker status. The IRS understands that businesses have an economic incentive to misclassify workers as independent contractors rather than employees. It costs about 30% less for a business to employ an independent contractor than an employee. The IRS thinks there is significant noncompliance in worker classification and will continue to focus its field examination resources in this area.

 Source: Examiner.com

5 Tips For Amending Your Tax Return

Amending Tips

The April 17th deadline has come and gone, however if you made a mistake or omission, you’ll need to file an amended return.  The following are 5 tips to consider when filing your 1040x.

1. Amend each year separately. If you are amending more than one tax return, prepare a separate Form 1040X for each. Mail each amended return in a separate envelope to the IRS “campus”—they used to be called “IRS Service Centers”—for the area where you live. The Form 1040X instructions list the addresses for these IRS campuses.

2. Amended returns are more likely to be audited. Few tax returns are actually audited, but tax lawyers must advise clients based on the assumption every tax return will be examined…Understandably, taxpayers hope their returns will not be examined! However, amended returns are more likely to be examined than original returns. That should factor into your thinking.

3. Refunds can be applied to estimated taxes. If you file an amended return asking for considerable money back, the IRS may review the situation even more carefully. As an alternative, consider applying all or part of your refund to your current year’s tax. That can be lower profile.

4. Beware special statute of limitations rules. Normally the IRS has three years to audit a tax return…You might assume that filing an amended tax return would restart that three-year statute of limitations. Surprisingly, it doesn’t.

If your amended return shows an increase in tax, and you submit it within 60 days before the three-year statue runs, the IRS has only 60 days after it receives the amended return to make an assessment. See Internal Revenue Manual 25.6.1, Statute of Limitations Processes and Procedures. That means if the IRS doesn’t audit in that 60 day window, you’re home free.

Planning opportunities? Some people amend a return right before the statute expires. Plus, note that an amended return that does not report a net increase in tax does not trigger any extension of the statue of limitations. 

5. Don’t forget interest and penalties. If your amended return shows you owe more tax than you originally reported and paid, you’ll owe additional interest and probably penalties. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions. The IRS will compute the interest and send you a bill if you don’t include it. If the IRS thinks you owe penalties it will send you a notice, which you can either pay or contest.

Conclusion. Amended tax returns are tricky. You should never take tax return filing obligations lightly, and your original return should be as accurate as you can make it. If you discover afterward that amendments are needed, make sure you think through the various ramifications of filing an amended return.  

R&G Brenner can help you file all amended returns.

Source: Forbes

6 Reasons The IRS May Audit You

6 Reasons For IRS Audits

“Why me?” is the plaintive cry from most taxpayers facing an examination from the IRS. You can ask the auditor why all day long, but he’ll just shrug and say, “I don’t know. I’m just doing my job.” Once in a while an auditor may give you her best guess as to why you were selected, but don’t count on it.

To be fair, there tends to be a good reason a tax return is flagged for an audit. Sometimes it is a random spin-of-the-wheel choice, but in most cases there’s a catalyst to the red flag. So here’s some insight:

1. Dif Scores. Electronic filing has made it much easier for the IRS to gather data in order to analyze population groupings, standards and trends. A simple act of feeding in parameters to existing data can provide information regarding queries like: How many home owners exist in a certain nine-digit ZIP code, or what is the average income in Wichita?

The IRS developed a method of computer scoring called the Discriminant Function System (DIF) score which rates the potential for change based on past IRS experience with similar returns. The Unreported Income DIF (UIDIF) score rates tax returns for the potential of unreported income. The highest-scoring returns are reviewed by IRS personnel and from there some are selected for audit with pointers to items on the return that need review.

So: You might be audited if you live in Bel Air, pay DMV tags for a Lamborghini, and pay interest on a million-dollar mortgage yet declare less than $100,000 of income. Although there may be a very good reason for this–maybe you earned millions in 2010 and left the workforce in 2011 to kick back and spend your fortune– the IRS will suspect you aren’t reporting all of your income, and will want to take a peek. 

2. Abusive tax avoidance transactions. Some folks are audited because they participate in abusive tax avoidance transactions. The IRS identifies promoters and participants usually from tipsters or from lists of participants that promoters have been court-ordered to turn over to the IRS. Be very wary when investing into those “too-good-to-be-true” tax shelters. Always run them by your tax pro.

3. Related examinations. I defended a general contractor in an audit recently. The IRS noticed that he had neglected to send out Forms 1099 to his subcontractors and then identified the subcontractors and checked their tax returns to see if they had declared the income–several had not. The agency pounced on those who had not – easy prey. I’ve had clients tell me that since they didn’t get a 1099, they didn’t think they were required to report the income. Not so. If you have self-employment income of $400 or more, you are required to file a tax return whether you receive a 1099 or not.

4. Specific market segments. Every year the IRS selects a particular industry for compliance examinations. In the last couple of years they have concentrated on foreign trusts with the idea of uncovering unreported income from offshore accounts. A few years ago they looked at attorneys incorporated as Sub S corporations attempting to reclassify dividends as wages for those who take low salaries but large distributions thus saving money on employment taxes. One year they went after servers in restaurants to collect on unreported tip income. Every year the agency chooses an industry to scrutinize based on suspected abuse hot spots.

5. Automatic Underreporter Program (AUR) and Information Matching. Employers, banks, brokerage firms, payers of independent contractors all file documents with the IRS and send the same documents – Forms 1099, W2, 1098, K-1, etc. to taxpayers. If you neglect to report any of the data on these forms, or report an amount different than what is on the form, the IRS picks up on it. Usually, it sends out a letter CP-2000 relaying the information and billing the taxpayer for additional taxes. Sometimes an agent shows up on your doorstep.

6. Amended returns are often times flagged for audit, especially if the information you are changing involves increasing deductions in red flag areas such as travel, meals and entertainment and automobile expense.

Don’t be afraid to amend if you have cause. However, if you are amending your income tax return, be sure you can substantiate all deductions and income.

Contact an R&G Brenner professional today for any other audit related questions.

Source:  Fox Business

Freelancers More Likely To Be Audited

2-3 Times More Likely To Be Audited

By Lou Carlozo

This past New Year’s Eve, any impulse I had to ring in 2012 on a high note was drowned out by alarm bells from Uncle Sam.

On that day, my wife and I received separate eight-page letters from the Internal Revenue Service informing us that we were being audited for the 2009 tax year. It was, to say the least, no cause for breaking out champagne and noisemakers. In fact, it seemed like a cruel twist: 2009 was the year I was laid off by the Chicago Tribune after 16 years of full-time employment. I then entered the freelance ranks, where I’ve remained ever since.

Honest taxpayers hit with IRS audits will ask themselves, “Why?” This freelance journalist is asking the same thing — and the “why” comes with an itch to dig for answers to share with readers. I suspected my story would fit into a larger narrative about who gets audited.

So I read up, watched some videos, and talked to tax experts. I also called the IRS media office; when I described my story, one good-natured spokesman joked that he couldn’t help with my audit, just audits in general. Ha ha.

Here’s what I learned: Self-employed people and freelancers get audited more — a lot more, it turns out — but there are good reasons for this.

In 2008, my last year of full-time employment for a company, 26 percent of employees listed themselves as free agents, according to the Kelly Services 2011 Free Agent Survey. (Free agents are individuals who consult, perform temporary, freelance or contract work, or have their own business.) Since then, their numbers have exploded, with more than four out of 10 employees in the free-agent pool.

Experts say that with more free agents than ever, the I.R.S. wants to take a close look at the growing numbers and make sure they’re doing their taxes correctly.


In 2010, 23 million taxpayers filed a Schedule C — which sole proprietors (such as freelance journalists) use to report profit or loss on an unincorporated business.

“If you go to the actual IRS statistics, the chances of a Schedule C being audited are twice as great as a corporation being audited,” says Keith Hall, a tax adviser for the National Association for the Self-Employed, in Washington D.C.

Now, adjust those figures to exclude small businesses under $25,000 in gross receipts, and here’s what you’ll find: Roughly 3 percent of small businesses under Schedule C get audited, compared to 1 percent of corporations.

So if you’re a sole proprietor, you’re almost three times as likely to get audited as a corporate filer, Hall says. And he should know: He’s been audited, twice. And both times, in 2004 and 2005, he didn’t owe the IRS an extra dime. (More on that in a bit.)

“It is my opinion that the IRS does target small business owners for audit,” Hall says.

And the IRS practically admits as much in a ten-part video series on line, “Your Guide to an IRS Audit.” (I’m also a freelance recording studio owner, and for a moment I wonder about re-recording the video series’ theme music for the IRS in exchange for being let off the hook for whatever I may owe them. The music sounds ominous and odd at the same time: a smooth-jazz pseudo-Bach fugue played on a plinky ’80s lounge synthesizer.)

That video series dramatizes the plights of three audited taxpayers; and guess what? All of the stories involve an individual who operates his or her own business.


If the IRS leans toward auditing small business owners, “It’s not because they don’t like us,” Hall says. “It’s that they find more errors and omissions.”

Hearing this, I wanted to beat myself up for not quadruple-checking my numbers or recording my mileage down to the nearest tenth of a mile. But am I being unfair to myself? Or, is the IRS potentially taking advantage of a liability I have as a Schedule C guy? That could be, Hall says.

Unlike many corporations, “The small business owner doesn’t have a CPA or a staff of accountants,” Hall notes. “And because the tax code is so complicated, it is much easier for the small business owner to make a mistake.”

Then again, some of those “mistakes” may be intentional.

“Many small business owners and self-employed taxpayers have some or most of their income reported to the IRS, but they deduct a lot of expenses that aren’t subject to third-party reporting,” says Rebecca J. Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice, in Washington D.C. “So there are lots of opportunities to overstate those deductions and lower their tax bills.”

And so I learned a parting lesson that I should know well as a journalist: The facts don’t lie. In surviving two audits unscathed, Hall produced a receipt or document to back up every deduction he made, and every line item on his tax return. I asked him for the key page from his playbook, and it’s one that you can use should the taxman call you in.

“Pull out your tax return and redo everything,” he advises. “In the audit letter, the IRS will ask you everything they’re looking for. You have to build your own little paper fort to answer those questions, and a lot of banks have digital records to support the numbers on your tax return before you go in to visit the IRS.”

Source: Reuters

Free Tax Prep Sites: Inaccurate Returns & Privacy Breach Concerns

The old adage that “you get what you pay for” is compounded when applied to free income tax preparation…In fact, a free tax return may cost taxpayers more than they bargained for.  The title of a report filed by the Treasury Inspector General for Tax Administration (TIGTA) sums it up frankly: Accuracy of Tax Returns, the Quality Assurance Processes, and Security of Taxpayer Information Remain Problems for the Volunteer Program.

The TIGTA audits of the Volunteer Income Tax Assistance (VITA) sites–a program sponsored by the IRS which caters to low-income tax payers, the elderly & the disabled–found that their accuracy rate was far below 50%.  Of the 36 tax returns that undercover TIGTA auditors had prepared at VITA sites, only 14 were considered to be filed correctly. That is a whopping 61% inaccuracy rate.  What is particularly alarming is the deliberate “modified facts” that some volunteers engaged in to inflate potential refunds, as well as the absence of a thorough vetting process to weed-out potentially unscrupulous volunteers:

The accuracy rates for tax returns prepared at Volunteer Program sites decreased sharply from the 2010 Filing Season. Of the 36 tax returns prepared for TIGTA auditors, only 14 (39 percent) were prepared correctly. Tax returns were prepared incorrectly because volunteers did not follow all guidelines. For example, volunteers did not always use the intake sheets correctly. For three (14 percent) of the 22 incorrectly prepared tax returns, volunteers knowingly modified the facts the auditors presented…[Furthermore] Current steps and processes do not ensure the integrity of volunteers, even though the volunteers have access to taxpayers’ Personally Identifiable Information, such as Social Security Numbers, driver licenses, and home addresses.

TIGTA Inspector General J. Russell George had the following to say:

The findings of this review are very troubling…The Volunteer Program plays an important role in helping many taxpayers, notably those who have low incomes, and the elderly, disabled, and limited-English proficient, participate in the tax system. Like all taxpayers, they deserve to have their tax returns prepared accurately. I am pleased that the IRS has agreed to our recommendations to address these problems.

Some of the important TGITA recommendations agreed to by the VITA program are as follows:

  • Include anonymous shopping visits as part of the quality review process
  • Improve controls over Volunteer Standards of Conduct (Form 13615)
  • Develop a process to ensure all volunteers are following the guidance focusing on the integrity of the Volunteer Program and the security of taxpayer information
  • Review the IRS fraud hotline procedures to determine best practices

R&G Brenner recognizes the valuable service that the thousands of VITA volunteers provide to millions of taxpayers across the country. However, it is apparent that the quality of these returns leaves much to be desired considering the continually changing & vastly complex tax code.  When you pair this with the fact that most VITA volunteers receive little or no compensation, it is not hard to see why so many returns are being prepared incorrectly, and that an environment for potential identity theft is being sewn.

For many, a tax return is the most important financial document they will file each year. Therefore, it is of the utmost importance that your tax preparer have a vested interest in the accuracy of your filings.  Here at R&G Brenner, we offer many promotions including a $50 introductory fee for new clients that qualify for tax assistance.  We can’t compete with “free”, but we can guarantee that our tax professionals, enrolled agents & CPA’s will have an attentive vested interest in preparing your return accurately, and getting you back every penny you deserve.  Remember, it’s not “free” if you are forced to spend considerable time retriving old tax documents, and money on penalties and interest correcting mistakes.  Contact R&G Brenner for more information, and to have your tax return reviewed for accuracy free of charge.

Sources: TIGTAWebCPA