Having one’s tax returns investigated by the IRS can be an unnerving experience, a valley attorney said.
“An IRS audit is like a financial heart attack,” said Taylor L. Randolph, whose law firm is at 2045 Village Center Circle. “It’s something you want to avoid at all cost.”
Tax software used by those who prepare their own returns is not infallible. Randolph told of one program that had a glitch. It allowed people to declare expenses for their car and standard expenses.
“Things like that rate an audit,” he said. “When you go in for an audit and you explain it, they kind of roll their eyes and say, ‘Now I understand why we’re here.’ ”
He said the more complicated one’s income source is, the more he is apt to make mistakes on his forms.
“Like a Schedule A, where people itemize deductions. People get a little creative there, and they add on things that are huge flags. They take un reimbursed employee expenses and (inflate them). … They take 20 miles a day and blow it up into 300 miles a day.”
He said large charity donations are also big flags. Schedule C is for business reporting, and most audits, he said, stem from that form.
He said the more forms someone fills out, the more apt he is to make an error . Declaring a home office, mileage or business expenses, charity and rental losses raise the biggest red flags, he said.
“In theory, one could go to jail, but generally, the IRS just wants its money,” Randolph said.
Donald Jones is on the faculty at the University of Nevada, Las Vegas Lied Business School. As a former business tax attorney and certified public accountant for 30 years, he has represented a lot of clients who have had to deal with the IRS.
“In my experience, the IRS sort of reaches for the stars,” he said. “It tries to write up a lot of things . A lot of it, they just don’t understand because they don’t understand the tax payer’s business. … What the IRS does, it has this secret formula. It gives a range for taxpayers of a certain income level and what types of deductions they should have. If someone falls outside that, that would raise a red flag.”
He said if someone declares only wages with a small sum of interest, it’s not that difficult to prepare his own taxes using the software. He said the big-name software such as Turbo Tax is reliable. He uses H&R Block’s software.
“I can remember back when I was a kid, my father did his own taxes … all the information on the dining table for two weeks,” Jones said. “You didn’t have software back then, and how difficult it was for him to sit down and try to figure the whole thing out.”
Some people will be asked to supply supporting documentation for claims on their form. If the IRS sends notice of an audit, Jones suggested seeing a certified public accountant for advice. An attorney might be warranted, he said, if the criminal division of the IRS contacts the person.
Liane “Larry” Courtright, an H&R Block employee, has 30 years’ experience.
“A lot of people probably feel they could do it (fill out their tax forms) on their own, but they’d really rather have a person to tell them they’re right or they’re wrong,” she said. “It’s that same issue you get into with an ATM versus a teller or the teleprompt on the phone. You’d probably be able to get to the information you want, but everyone would rather deal with a human being.”
Clients tend to be prone to certain errors, Courtright said.
“What we see are common mistakes, such as parents who are claiming their children and thinking that they have to claim their (the child’s) income, as well,” Courtright said. “No, you don’t need to claim their earnings … you’ve just made yourself look like you have more income, and now you’re paying taxes on them. Don’t do it.”
She said gambling losses can also trip people up.
The tax company offers Second Look, a free service that checks a return done by an individual either by hand or with the use of a software program.
Raphael Tulino, IRS media relations employee for Southern California and Nevada, said there are thousands of pages in the tax code, but “if you’re looking for information on taxes, we’ve got a lot of it that’s written in plain English and easy to understand for you as a taxpayer through our hundreds and hundreds of publications on various topics for taxes.”
He said common errors include transposing digits in one’s Social Security number or, if filled out by hand, making a simple mathematical miscalculation. Some people forgot that both signatures are required of couples filing a joint return.
“A lot of the errors are really reduced if you use e-file,” Tulino said , “ because the computer and the software hold your hand all the way through it, so math errors are just about zero. … You just want to make sure you key in the right information.”
The IRS offers Free File, available at freefile.irs.gov , free for those with adjusted gross incomes of $57,000 or less. That site also lists about 15 companies that offer free tax preparation software in partnership with the IRS.
A return may be examined for a variety of reasons, the IRS said, and the examination may occur in a variety of ways. After the examination, if any changes to one’s tax liability are proposed, the filer can either pay any additional tax or he can disagree with the changes and file an appeal.
Returns may be selected for examination on the basis of computer scoring. A computer program called the Discriminant Inventory Function System assigns a numeric score to each individual return and to certain corporate tax returns after they have been processed. A return may be selected for examination due to a high score under the DIF system . A return may also be selected due to information received from third-party documentation, such as forms 1099 and W-2, that does not match the information reported on a return.
In 2011, the IRS showed 134,000 citizens filed no returns. Those were investigated.
Tulino said the process begins with a letter.
About 80 percent of all tax returns are filed electronically. As for identity theft, the IRS has processed about 1 billion tax returns via e-file, Tulino said, and “I’m not aware of breaches of any information (from) filing electronically.”
“The ease and convenience offered by electronic filing is like night and day compared to using paper forms and such, and if you’re still filing with a paper form, you might want to double check things, maybe even triple check things just to be sure you file an accurate return,” he said. “Paper is certainly becoming a thing of the past.”
Contact Summerlin/Summerlin South View reporter Jan Hogan at email@example.com or 702-387-2949.