Thursday, January 27, 2011


Read my lips -

Do not fail to claim a legitimate, documented tax deduction on your 2010 Form 1040 just because you read somewhere that it is an IRS “red flag” and that claiming it will automatically result in an IRS audit.

(1) If your deduction is legitimate and you have sufficient documentation to prove its authenticity in an audit then what is the problem? An audit is not something that must be avoided at all costs – it is merely an inconvenience.

(2) Just because the IRS pays closer attention to tax returns that contain certain deductions or credits does not mean if you return contains this deduction of credit you will “automatically” be audited. The IRS only audits a small percentage of 1040s – and several factors are involved in determining which returns are selected for audit.

(3) If you fail to claim a legitimate deduction or credit you have, in effect, audited your own return and disallowed the deduction – neither of which the IRS may actually do.

(4) Just because you read somewhere that an item is an IRS “red flag” does not mean that the item is really an IRS “red flag”.

I must add that if the alleged “red flag” deduction or credit is legitimate and documented, but another item on your return is not, an IRS audit might turn up the “questionable” item. The answer is obviously to claim only items that are legitimate on your tax return, and be sure to have sufficient documentation for all deductions and credits you claim.

In addition to being an inconvenience an audit will also cost you some money – especially if you bring your tax pro with you or send him/her to the audit as your legal representative under a Power of Attorney. You will need to pay for the tax pro’s time. If you are selected for an audit you should determine if the amount of additional tax, interest, and penalty charges you may be assessed for the item(s) in question is more than your potential costs at the various levels of the audit process.

If you are selected for an audit by the IRS or state tax authority, or receive any correspondence from these guys, the first thing you should do is immediately send the notice or correspondence to your tax preparer.


1 comment:

Thomas Scanlon, CPA said...


Well said. Taxpayers should not leave any deductions on the table.

Good luck with tax season.


Tom Scanlon