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Using tax software may reduce the likelihood of an audit

On Behalf of | Aug 11, 2016 | Tax Audits

Few pieces of mail elicit more anxiety among Georgia residents than an audit notice from the Internal Revenue Service. Financial experts often provide advice about how to best avoid an audit, but data provided by the oft-maligned agency indicates that using professional tax software to prepare an income tax return may lower the chances of being selected and earning more than $1 million could increase them.

In a May 2016 report, the IRS revealed that the number of people using software like TaxACT and TurboTax had increased by 5.7 percent to 51.9 million. This increase continues a trend that has seen the use of professional tax preparation software soar by more than a third since 2011. While the IRS did not say that using such software reduced the likelihood of an audit, the number of audits conducted by the agency in 2015 was the lowest in a decade. The amount of revenue collected by IRS auditors also fell from $12.51 billion in 2014 to $7.32 billion in 2015.

Most of the tax returns selected for an audit were filed by taxpayers who received a notice in the mail stating that taxes were due, and the kind of oversights that can lead to what the IRS refers to as a correspondence audit may sometimes be flagged and avoided by tax software. However, earning a significant income remains the most likely cause of an audit. While those with returns showing income of under $200,000 are audited less than 1 percent of the time, the odds of being selected shoot up to about 10 percent for taxpayers earning $1 million or more.

Experienced tax attorneys could assist those facing an IRS audit by helping them to reconstruct their expense records so that deductions may be substantiated even if receipts have been misplaced or discarded. Attorneys could also negotiate with the IRS on behalf of taxpayers to reduce penalties, avoid asset seizures and set up installment agreements.