IT may be downsized, but the Internal Revenue Service probably
knows more about American taxpayers than ever before, given the
agency's increased ability to electronically cross-check available
tax documents. And IRS audits may be tougher than ever, thanks to
research work undertaken in recent years involving the agency's
So even though the taxman won't be visiting as many people this
year, experts say be prepared.
"We expect that there will be slightly fewer audits than
occurred last year" as a result of federal budget cuts and a
slightly smaller work force, says IRS spokesman Anthony Burke. "But
there will still be more than took place back in the early 1990s."
Estimates as to the exact number of returns to be audited
varies, according to how the IRS measures its various compliance
programs. Thus, for fiscal year 1995, which ended in September of
last year, the agency examined 1.67 percent of all individual tax
returns, compared with 1.08 percent for 1994. This calender year,
according to one agency reckoning, the audit rate will be around
1.4 percent of all returns. That translates into well over 1
million returns for each year.
"The main difference this year is that there will be fewer
correspondence audits, that is, simple questions put to taxpayers
through the mail," says Frederick Daily, a tax attorney based in
San Francisco, and author of "Stand Up to The IRS." Part of the
reason is electronic, Mr. Daily says. The agency can now better
correlate tax documents.
Field audits may hold steady
"Actual field audits, where you visit an IRS office, will
probably remain about the same as last year," says Mr. Daily.
"Taxpayers shouldn't be looking for fewer or easier field audits
this year," agrees Edward Wallower, who heads the tax-appeals
program for H & R Block Inc., a national tax-preparation firm based
in Kansas City, Mo.
"In an audit, the IRS is now looking for everything about you,"
says Amir Aczel, a statistician at Bentley College in Waltham,
Mass. "The IRS is using tougher methods now," says the professor,
who underwent an intense audit that prompted him to write a book,
"How to Beat The IRS At It's Own Game.".
Last year's higher auditing rate stemmed partly from a special
multimillion dollar appropriation by Congress. The supplemental
appropriation was supposed to continue for several more years, but
the new Republican-majority scuttled the provision. …