Just Trying To Help, Says IRS About Latest Random Audit Program
(RIVERWOODS, ILL., June 20, 2002) – If all goes according to
plan, this fall the Internal Revenue Service (IRS) will conduct
searching, line-by-line audits in order to update its statistical
profiles of likely tax cheats – and one reason given by the IRS is
that they actually want to spare more taxpayers from the rigors of
having their returns examined, according to CCH INCORPORATED (CCH), a
leading provider of tax and business information and software (tax.cchgroup.com).
In the past, the IRS randomly selected a number of returns for a
detailed inspection under what was called the Taxpayer Compliance
Measurement Program (TCMP). The TCMP produced guidelines that could
sift through vast numbers of returns and focus IRS suspicions on the
likeliest candidates for understated income and overstated deductions.
They were last performed on 1988 returns.
"The TCMP audits were fairly excruciating from the taxpayer’s
point of view," noted Mark Luscombe, principal tax analyst for
the CCH federal and state tax group. "Those being audited had to
back up every number and every decimal point. The audits antagonized a
lot of taxpayers and generated a lot of hostile comment in
The IRS proposed an updated and expanded random audit program in
1994, but withdrew the idea under withering criticism.
End to "Data Drought"
But now the IRS is gearing up to sit down with 2,000 taxpayers for
long talks about their 2001 returns under what they are calling the
National Research Program (NRP).
At a recent IRS conference in Washington, D.C., IRS financial
analyst Janet McCubbin said that the NRP would end a "13-year
"The question is, how hard are people going to be squeezed to
get that data," Luscombe asked.
According to the IRS, they won’t be squeezed as hard as under the
old TCMP. NRP auditors will be instructed to request "reasonable
substantiation" for income and deductions taken on their tax
returns. This is less stringent and more taxpayer friendly than the
rigid documentation requirements of the old TCMP.
In addition to the 2,000 taxpayers undergoing face-to-face,
line-by-line examinations, 30,000 more will be called in for audits of
a more limited scope – for example, the audit might be confined to
their charitable deductions.
A further 9,000 taxpayers will be asked to respond to inquiries
from the IRS by mail and a final 8,000 returns will be examined by the
IRS with no taxpayer contact – by matching information documents,
such as Forms W-2, 1099 and 1098.
All told, nearly 50,000 taxpayers will supply data to the research
program in one way or another.
"Under the old TCMP program, those 50,000 would all face
line-by-line audits," Luscombe noted.
Fewer Audits, More Results
The IRS claims that by putting a small number of returns under the
microscope, they will actually spare many taxpayers the time, money
and uncertainty of unnecessary audits.
At the press conference earlier this year at which he unveiled the
NRP, IRS Commissioner Charles O. Rossotti claimed that for lack of
up-to-date data, the IRS was conducting more and more audits that
resulted in no change to the taxpayer’s return.
He pointed to a chart that showed the number of no-change audits by
year. In 1987, the percentage of no-change audits was less than 20
percent. Currently, the rate of no- change audits has risen to more
than 25 percent and that number is expected to increase as long as the
IRS continues to use the outdated and inaccurate TCMP data.
Rossotti promised that the IRS would audit at least 15,000 fewer
taxpayers using the updated NRP formulas than under the TCMP formulas.
At the same time, Rossotti predicted that with the NRP up and
running, the IRS would be able to determine how much of tax that
should be paid is paid and determine who is not paying their fair
share of tax.
"Perhaps this is a little increased security measures being
taken these days," Luscombe observed. "Some people are
inconvenienced by being examined pretty closely so that everyone can
feel more secure that the system is working as it should."
About CCH INCORPORATED
CCH INCORPORATED, headquartered in Riverwoods, Ill., was
founded in 1913 and has served four generations of business
professionals and their clients. The company produces more than 700
electronic and print products for the tax, legal, securities,
insurance, human resources, health care and small business markets.
CCH is a wholly owned subsidiary of Wolters Kluwer U.S. The CCH web
site can be accessed at cch.com.
The CCH federal and state tax web site can be accessed at tax.cchgroup.com.
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