Eight Areas Demand Special Care to Avoid Tax Audits

By Porter, Sylvia | THE JOURNAL RECORD, March 11, 1989 | Go to article overview

Eight Areas Demand Special Care to Avoid Tax Audits


Porter, Sylvia, THE JOURNAL RECORD


We are now into the weeks when taxpayers from coast to coast get serious about preparing their income tax returns for 1988 - and the shrewdest taxpayers seek to avoid items that will trigger audits.

The IRS flatly refuses to specify the particular income and deduction amounts that are likely to attract the suspicious eye of an IRS examiner. But experienced preparers have identified the characteristics that can cause a return to be audited.

Below is a list of eight areas that Matthew Bender & Co., publisher of ``Tax Manual for 1989,'' says demand special care on your part and mine to prevent drawing attention from the IRS.

- Tax shelter activity. Real etate and other tax shelters with high write-offs are frequently subject to severe IRS scrutiny, as the IRS believes these shelters have a high potential for abuse.

- Returns prepared by those on the ``Problem Preparers List.'' District IRS offices have ``Return Preparer's Programs'' in effect that are aimed at preparers who clearly violate the law and are a target of the service. Choose your professional preparer carefully.

- Travel and entertainment expense deductions. You should keep well-maintained, detailed diaries of these expenses to corroborate and/or supplement your receipts. For example, the IRS will expect entertainment records to include the name of the person entertained and the person's business relationship to the taxpayer.

- Deduction for business use of automobiles. Expenses must be apportioned between personal and business use of the automobile. Detailed documentation (a daily log book with trip and mileage information, receipts, etc.) will help support your claim deduction in this particularly audit-sensitive area.

- Home office expense deductions. You must meet stringent requirements in order to successfully claim a deduction for home office expenses, and such deductions are frequently disallowed.

- Casualty losses. Only loss resulting from an event that is ``sudden, unexpected and unusual in nature'' is allowed as a casualty loss. The IRS often disputes the meaning of these terms, so it is not always clear that a loss is due to casualty. In any event, you should retain any documentation that would substantiate the claim of loss (insurance records, police or fire department reports, appraisals, etc. …

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