Time: Fri Nov 14 06:31:23 1997
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Date: Fri, 14 Nov 1997 06:20:15 -0800
To: (Recipient list suppressed)
From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: Tax Audit (fwd)

>                                  BY
>                  Al Gutkin, Sysop of "THE TAX BOARD"
>                            714 - 974 3730
>     1. Personal tax return audits - done at the IRS office.
>     2. Business Audits - done  at  the taxpayers place of business  or 
>                          the  accountants  office,   if  the  taxpayer 
>                          chooses.
>     Personal  tax returns can be selected for audit by three different 
>methods.   I  will  discuss these methods first as there  is  a  second 
>process  the  tax  return goes through before you are  notified  of  an 
>     The  first method is the DIF score method (see paragraph below  on 
>DIF  score).  Every personal tax return is given a DIF score when it is 
>processed  through the IRS computer.   The higher the score,  the  more 
>chance of an audit.
>     Several months after the return is filed the District Director, of 
>your  residential  area,  makes up a budget of  available  manpower  to 
>perform  audits.   This  includes the number of audits he  expects  his 
>district  to accomplish during the next year.   Based upon the  budget, 
>the IRS computer automatically selects from the highest DIF scores down 
>until  enough  return  have  been selected to  to  satisfy  the  budget 
>requirements of the district.
>     The  second  method  comes  from the  Adjustment  Section  of  the 
>computer center.   This is the mistake section.   If you make a mistake 
>in  addition or completion of your tax form the computer can't  process 
>it  without  Human help.   Thus,  your return gets passed over  to  the 
>Adjustment  section  for  correction.   If they can't figure  out  your 
>mistake, It's referred for Audit.
>     The third method is The Special Project Method.   Also a  computer 
>method of selection.   If the IRS determines that there is tax abuse in 
>a specialized area,  the computer searches the data base for deductions 
>in  that  particular area and bango,  the whole lot is  audited.   This 
>method  can  also be used for certain types  of  occupations,  such  as 
>doctors, tax preparers etc.
>     Example...   The IRS passed laws regarding Offices in the Home and 
>Personal Computers.  If the IRS determined that in 1985 most tax payers 
>didn't  heed the rules  (proper way of listing the deduction) or failed 
>to segregate the computer from other items listed on form 4562.   There 
>will be a project to audit tax returns for which there is an  (assumed) 
>incorrect business deduction.  
>     Every  five  years the IRS runs a program called TCMP  (  taxpayer 
>compliance  measurement  program).   The purpose of this program is  to 
>monitor  the results of taxpayer audits.   This type of audit  is  very 
>much  in-depth.  As the agent must fill out an extensive  questionnaire 
>concerning  each  audit and the results.  The computer  audit  division 
>compiles  the  results of the agent's reports with an eye for areas  of 
>non-compliance with the tax laws (big adjustments).   The IRS computers 
>are then programmed to evaluate returns filed in subsequent years based 
>upon the this criteria. Thus the diff score of three digits is assigned 
>to  every  return as it is processed through  the  IRS  computer.   The 
>higher the score the more likelihood of an audit.
>     After  your return is selected for audit,  by any of  the  methods 
>above,  a  real live Human Being looks at it.  Agents usually volunteer 
>for this duty.
>     The agent has no idea why the return was selected,  this is kept a 
>secret.   He  or She then has to look over the returns and select three 
>items  to be examined.   The computer may have given the return a  high 
>score  because  of one item,  however,  the agent  must  select  three.  
>Hence,  some  taxpayers are are asked to prove areas of deduction  that 
>are  small or obviously correct.   In addition,  if you,  the taxpayer, 
>included  a  lengthy  explanation of a deduction as part  of  your  tax 
>return package,  it will arouse the agents attention and this item will 
>be selected for review.   In other words,  lengthy explanations  should 
>not be attached to your tax return. The only time it would be looked is 
>after your return was selected for audit by the computer.
>     The  process of selecting business returns,  such as  corporations 
>and partnerships,  is completely different from individual returns.  It 
>is much simpler and more human as opposed to the computer selection  of 
>individual returns.
>     Business  returns  are selected completely by hand,  no  computer.  
>Field agents (business auditors) volunteer to work on a temp. detail at 
>the service center for the purpose of selecting business returns to  be 
>audited.   There  are no set guidelines for the selection process and a 
>business  return  can  be selected solely based  upon  that  particular 
>agents  whim.   I  have  heard of agents selecting  returns  for  audit 
>because  they had to many staples in them.   The returns  selected  for 
>business  audit  do not have specific areas indicated  for  audit,  the 
>examining  agent  at the local level makes the selection while  on  the 
>business site.
>     We are now at the conclusion of the selection process performed at 
>the  regional  service  center.   The next step  is  for  the  selected 
>personal and business returns to be transferred from the service center 
>to the local examining office.
>     The  personal returns to be audited are assigned to "Office Audit" 
>and the appointment clerk sends out the notices to the  taxpayer.   The 
>notices   indicate   which  items  are  selected  for  audit  and   the 
>substantiation  needed.    The  taxpayer  has  ten  days  to  make   an 
>appointment for the audit. 
>     Office  audit agents do not have very much latitude when it  comes 
>to whether or not the selected items are valid areas of audit.   If the 
>item is listed to be audited, by god, the agent will audit that area no 
>matter how insignificant that particular item may be. 
>     Business  auditors,  are a different breed altogether.   Most have 
>had  extensive  training in accounting and tax,  which  is  a  required 
>before they are even hired.   A business agent has complete latitude in 
>selecting what items are to be audited.  The agent can also look at the 
>return  and decide not to audit it.  The business is not contacted when 
>the return arrives at the local office,  they are contacted when and if 
>the  local  agent is ready to start the audit.  I have also heard  that 
>some agents actually don't audit returns because the tax consequence is 
>to small or the business location is undesirable.   Again,  I have also 
>heard the the same agent will select more items on the business  return 
>because there are to many staples or the return is sloppy. No kidding!!
>     Like  it  or not,  this is the system of audit  selection  in  the 
>United  States.  There are two ways to approach it.   One is to  bitch, 
>bitch,  bitch and get nowhere.  The other is to become knowledgeable of 
>the  system and figure how to deal with it from a position of  strength 
>and knowledge.
>     If  you choose the second approach,  I will be following  up  this 
>educational masterpiece with several more in the future.  Check with us 
>714-974 3730.
>                                AL GUTKIN

Paul Andrew Mitchell, Sui Juris      : Counselor at Law, federal witness 01
B.A.: Political Science, UCLA;   M.S.: Public Administration, U.C.Irvine 02
tel:     (520) 320-1514: machine; fax: (520) 320-1256: 24-hour/day-night 03
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website: http://supremelaw.com       : visit the Supreme Law Library now 05
ship to: c/o 2509 N. Campbell, #1776 : this is free speech,  at its best 06
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_____________________________________: Law is authority in written words 09
As agents of the Most High, we came here to establish justice.  We shall 10
not leave, until our mission is accomplished and justice reigns eternal. 11
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