IRS Expands Areas That Are Fair Game during Tax Audits

By Ap | St Louis Post-Dispatch (MO), March 18, 1995 | Go to article overview

IRS Expands Areas That Are Fair Game during Tax Audits


Ap, St Louis Post-Dispatch (MO)


From now on, if you are audited by the Internal Revenue Service, it won't just scrutinize your 1040 tax form, your pay stubs and your charity receipts.

It might take a look at what kind of car you drive, ask how you catered your child's wedding or find out how much your rich uncle left you in his will.

Beginning this year, all individuals selected for IRS audits will find their personal lives as well as their returns scrutinized for evidence of unreported income. "It wants to know how someone with a $30,000 income can afford a $400,000 house or drive around in a new Lincoln," said Joseph Lane, a former IRS supervisor from Menlo Park, Calif., who now represents clients in tax disputes.

The IRS is quietly instituting the changes as part of a strategy to get more people to pay their taxes. Uncollected taxes total at least $127 billion a year, the IRS says. The agency's goal is to raise the compliance rate to 90 percent from the current 83 percent by 2001.

Some tax experts who have seen the training manuals that the IRS is preparing for its 15,500 auditors contend that some of the new procedures are too invasive. "They're trying to turn these auditors, who are basically accountants, into detectives," said Frederick W. Daily, a tax lawyer in San Francisco and author of "Stand Up to the IRS."

"They are supposed to look for body language. . . . They want to know what kind of car you drive . . . whether you have relatives with money. The IRS is getting away from your return, and now it's you being put under a microscope."

One section of the new manuals lists some highly personal areas for auditors to check, Lane said. Among them: weddings of children, cultural background, vacations and home furnishings.

Steve Pyrek, an IRS spokesman, said that instead of merely comparing returns with documents such as W-2 wage statements and 1099 interest forms, the agency will try to determine "economic reality" - that is, whether your reported income is consistent with the way you live. …

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