IRS Brings Back Random Audits, 50,000 Targeted

Fed up with tax cheats, the IRS will randomly audit 50,000 taxpayers, 2,000 line by line.

By David A. Semanchik, Esq.

The Internal Revenue Service hasn’t done it since 1988, when American taxpayers complained to Congress that IRS audits forced them to defense every single line of their tax returns.

But in a post-Enron America where lawmakers are tired of cheating corporations and individuals, the IRS announced last month that it will bring back random audits.  This year, 50,000 taxpayers will be audited, with 2,000 to receive line-by-line audits.

While this round of audits is not necessarily intended to collar current tax cheats, information gathered will help the IRS to identify possible tax cheats in the future.

Additionally, these new random audits have received dauntless support from Capitol Hill.  Even Sen. Charles Grassley, R-Iowa, a longtime thorn in the tax-collecting agency’s side, supports the random audits.

“The information from these audits will allow the IRS to target its limited resources on examining those taxpayers who are most likely to be up to no good, while leaving honest taxpayers alone,” he commented to the Wall Street Journal.

These random audits are just one measure the IRS has taken recently to haul in the tax cheats.

The IRS and Department of Justice closed deals with American Express and MasterCard that opened credit-card records of Americans believed to be using offshore accounts to evade paying income taxes.  A common tax-evading scheme is to charge expenses on credit cards and then pay them off using funds from an offshore bank account.

The IRS believes as many as 2 million Americans will be caught once the agency begins to investigate the data from American Express and MasterCard.

That’s not all.  The IRS also recently issued summons to accounting firms, investment banks and financial advisors, demanding the names of wealthy clients who use tax shelters.

Only last month, the IRS announced plans to investigate businesses that sell information to help taxpayers avoid income taxes.  The agency will find the illegal businesses the same way common tax cheats find them: via the Internet.  What’s more, the IRS is tweaking its meta tags – information search engines use to establish keyword relevancy – so that the IRS Web sites come up when internet users search for “tax shelters” and “avoid income tax.”

All these actions have been taken as a part of a comprehensive effort to establish a more aggressive IRS – something President George W. Bush has supported since he took office.

In previous years, the IRS hasn’t been able to audit as many taxpayers as it would like.  The agency audited 731,756 individuals for the fiscal year that ended Sept. 30.  In 1995, it audited 1.92 million individual taxpayers.

Tax cheats beware. These new actions are meant to bring the audit numbers back up and put tax cheats behind bars.

David A. Semanchik, Esq. New Jersey Licensed Attorney and, a member of the American Society of IRS Problem Solvers.  You can contact him at 732 240 4055 to obtain a free subscription to his newsletter titled The IRS Times & Inquirer.