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One... Million... Audits? YIPPIE!!!!!!! Or is it...

Tax Audits: Incredibly scary to a taxpayer, the bread and butter of tax lawyers. I am not ashamed to say it, audits are good for business, my business. However the recently announced estimate by IRS Commissioner John Koskinen of 1 Million audits for this year, is not good, not for me and not for the taxpayer.

First the lawyers: In prior years the IRS has challenged 1.4 Million taxpayers, give or take, to back up the information provided on filed tax returns. Now while a million is still substantial (and no one really cares that a tax lawyer has lost out on a bigger pool from which to get clients from) the type of audits that will be conducted is hard on the lawyer and the taxpayer. Due to a deep defunding of IRS, budget cuts have reduced staff and taxpayer services substantially. Therefore the Service will be leaning more heavily on their (outdated) computer systems, which unforgivingly red flag anything out of the ordinary. Therefore, while an audit may be initiated, the ability to deal with a real life person to discuss the matter has eroded, which will not benefit the lawyers or the taxpayer.

Now the taxpayer: As mentioned above, while it might be somewhat easier to fall through the cracks now with a reduced audit possibility, the type of audit you get will be deeply unpleasant. There can be no one to talk to, no one for your attorney to argue with, no one to explain to and simply long hold times with an eventual hang up on the government end (leading I can tell you from personal experience to major expletive increase from your lawyer).

So what to do? Is this the opportunity to cheat? Absolutely not, and this is not a "wink wink" moment. With a more electronically leaning IRS the red flags will be less forgiving and people will be picked out of the crowd for anything amiss. If you give too much charity, deduct a home office, if you are lucky enough to be wealthy, those with odd dependent deductions, claimers of the Earned Income Tax credit and CERTAINLY those with money abroad ("wink wink" see my first post, this IS a wink wink moment) will indiscriminately be picked out of the crowd and questioned by a cold calculating computer. Should these unfortunate individuals be hiding anything in their closet they will be punished severally, as there will be no one to complain to(except your tax lawyer of course).

So what to do? Gird yourself. Keep every piece of paper, credit statement, loan and investment documents. Keep a detailed calendar (you would be surprised how useful it is) and above all do not overestimate, if it looks weird it will be found. Then you will need me, and nobody wants that, because I need a vacation.

Benjamin Goldburd is an Associate at Goldburd McCone LLP a boutique tax law firm in New York City.

For more information on these and other tax issues feel free to contact our offices at 212-302-9400, or on the web at www.goldburdmccone.com

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