Tax News

CCH (cch.taxgroup.com) reports:

Audit letters are in the mail and individuals nationwide will begin receiving letters in October from the IRS informing them they have been selected for a special audit project, Mark Mazur, director, research, analysis and statistics for the IRS, tells CCH. Mazur also reported that the Service's special audit study of S corporations is almost finished and preliminary data should be released in 2008.
Identifying Noncompliance
Under pressure from Congress to close the $300 billion tax gap --the difference between what taxpayers owe and what they pay --the IRS is taking a closer look at returns to identify noncompliance and update its audit selection formulas. The current trend of auditing special segments of the taxpaying public began a few years ago with a special study of S corporation returns (TAXDAY, 2007/06/07, I.1).
Roughly 13,000 individual returns from the 2006 tax year and future tax years will be selected for audit. The study of Form 1040 series returns is rolling, Mazur explained. It will begin with individual returns from the 2006 tax year and continue into the foreseeable future, he indicated.
"The sample size is as small as we could credibly make it to minimize the burden on taxpayers" Mazur said. A similar study several years ago involved 45,000 individuals, he noted (TAXDAY, 2007/06/15, I.5). The 13,000 returns represent less than one-tenth of one percent of the 135 million individual returns the IRS receives annually.
The IRS anticipates discovering what types of income individuals are misreporting, Mazur noted. The study is also likely to confirm that third-party reporting, such as third-party reporting of wages and pensions, guarantees higher compliance.
Taxpayer Contact
Some individuals will not even know they are part of the project. If the item on the return in question can be verified by IRS records, the individual will not be contacted. The percentage of individuals who will not be contacted will be small, Mazur predicted.
Individuals selected for correspondence or face-to-face audits will receive letters informing them they are part of the special study. "Taxpayers cannot opt-out," Mazur said. The letters are being sent from IRS field offices and not from the National Office in Washington, D.C., he explained. The IRS aims to make the entire process as minimally intrusive as possible, he emphasized.
S Corporations
A special audit project of S corporations is nearing completion, Mazur reported. The examination phase of the study of roughly 5,000 S corporation returns from the 2003 and 2004 tax years ended on September 30. "We are very far along; 95 percent completed," he said. Preliminary findings will likely be announced early next year, he added.
More Projects Possible
If Congress provides funding, the IRS could engage in more than one audit project at a time. President Bush has recommended increased funding for these initiatives (TAXDAY, 2007/05/10, C.2).
By George L. Yaksick, Jr., CCH News Staff