Years ago, I was helping a banker with his tax return, and he complained that his bank was having problems with borrowers who submitted phony tax returns. I told him that if he wanted to assemble his staff for one hour, I could show them exactly how to identify a made-up return and find the lies.
I even bet him that I could tell him more about the borrowers, their lives, and their finances than he and his staff could learn from the application. We performed a blind test, where they removed all identifying information about the client—and I won.
If I can do that, so can the IRS!
People come to TaxMama all the time to ask me to help them or their clients during IRS audits. Invariably, when I look at the tax return that was selected for audit, it’s obvious to me that it was just begging to be audited.
Look at your own tax return for these obvious signs:
Do you have errors and inconsistencies all over your tax return?
Is your taxable income zero or less than zero (when you subtract your itemized or standard deductions from your adjusted gross income)?
Do you have very high itemized deductions—and very low taxable income, or none?
Do you have several Schedule Cs (Profit or Loss from Business) in your tax returns, with losses or very little profit?
Are you taking disproportionate deductions for meals, entertainment, or travel?
Is your business showing a substantial loss, with modest income and no advertising expense?
These are some of the obvious, commonsense things that come to mind. Though after you’ve been looking at tax returns for twenty or thirty years, some things just stand out as being obvious—without your being able to define why up front. Fortunately for you, many of the longer-term employees at the IRS are retiring. The new ones don’t have this level of insight—yet.
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