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The Honolulu Advertiser
Posted on: Sunday, April 7, 2002

IRS will audit 50,000 more filers this year

Associated Press

It's the letter Americans dread most — a cordial invitation to visit the local Internal Revenue Service office for an audit.

Although the number of audits has decreased in recent years, they remain an important government tool to ensure compliance with the nation's tax laws. Last year, some 732,000 individual returns — about one out of every 170 that were filed — were audited, the IRS said. About two-thirds involved mail inquiries, while the rest required a sit-down meeting.

This year, nearly 50,000 additional tax returns will be subjected to special "national research program" audits so the IRS can develop new baselines for checking future returns.

Tax experts say there are a number of things taxpayers can do when they prepare their forms to reduce the odds that they will be called on to defend their filings.

• Neatness can count a lot.

"A sloppy return suggests a person's finances may be sloppy and his reporting to the government may be sloppy," said Jacob I. Friedman, chairman of the tax department at Proskauer Rose LLP in New York. "Lack of neatness can be a red flag to the IRS."

• Accuracy in numbers.

In recent years, the government has stepped up its document-matching program, which cross-checks what taxpayers report against forms filed separately by their employers, banks and brokers.

That means the numbers on your tax return should faithfully reflect the numbers on your W-2 wage statements and 1099 interest and dividend documents. Correct Social Security numbers are important, too, he said.

• Doubtful deductions

Heavy medical expenses, undocumented charitable contributions and home office deductions can all draw IRS scrutiny, said Martin S. Kaplan, a New York accountant who wrote "What the IRS Doesn't Want You to Know." Medical expenses, for example, must exceed 7 1/2 percent of your adjusted gross income to be deductible.

• Charitable to a fault

Most people get written receipts to prove cash contributions. Noncash donations are more problematic.

Kaplan suggests that taxpayers check the "valuation guide" at the Salvation Army's Web site, www.salvationarmy.org, to price clothing and household donations "because that's what the IRS uses." Pricey donations, such as a car valued at $5,000 or more, require formal appraisals.