If it sounds too good to be true…
I was working for a tax-prep company in my early years of preparing taxes, and was scheduled to meet with a client because he had “an IRS letter”. I was one of the few people in the office who had dealt with IRS letters.
The guy comes in with his tax documents and I asked him to show me the “letter”. He pulled out a stack of papers about a half-inch thick, and placed it on the desk in front of me.
“That’s not an IRS letter,” I said. “You were audited.”
He looked grim and nodded.
I asked to see his tax return for the year he was audited. He pulled that out and I flipped through it. I pointed to the number that looked funny to me. “You were audited for this line?”
He nodded again. “How can you tell?”
In all honesty, it was really simple. There are certain perameters that look “normal” on a tax return and then there are others that just stick out. If you have an experienced, knowledgeable tax person, they’ll be able to find these numbers without too much trouble. I truly believe that this is what tax people refer to as “red flags”. (But more on that later).
I thumbed through the papers and found the page with the audit determination on it. The guy had self-prepared his taxes with the “assistance” of tax prep software. (More on that later, too) I guess he had answered some question incorrectly in the software and *POOF* it allowed him to do truly illegal things, for his situation. When he went in to the audit, by himself, his replies to the auditor who asked about the return were, “But the tax software let me do it.”
The final result of the audit went along the lines of, “while we understand that the taxpayer did not have a large amount of tax knowledge, he should have known that there was a significant error because his refund was too good to be true.”
And it was.