Audit Misconception #1

"I just got my refund check, so that means I won't be audited."

Many taxpayers are relieved when they've gotten their refund check, because they assume it means the IRS has checked over their return, everything's okay, and therefore they won't be audited. This is totally wrong. While the IRS now withholds portions of refunds due to the discovery of obviously erroneous deductions (see Chapter 6), the issuance of a refund has no bearing on whether you will be audited.

In the absence of a clearly disallowable deduction, refund checks are sent out, while the determination of who will be audited is made much later, after a series of steps involving computer identification and manual selection procedures. Also, the IRS audits less the 1 1/2 percent of all income tax returns, and it would be a hardship to withhold the refunds of about 75 million taxpayers, just because the other 1.2 million may owe additional taxes.

This misconception also assumes that those who are audited always owe ADDITIONAL taxes as a result of the audit. This is almost true, but in 1986 IRS audits resulted in 68,310 taxpayers receiving refunds of 3/4 billion dollars.

From the date a tax return is filed, the IRS has three years to audit and assess additional taxes. There is no time limitation on assessment if the return is false or fraudulent or not return was filed. (The IRS has authority to prepare and sign a return if the taxpayer doesn't.)

The IRS likes to audit a tax return as soon as possible after filing, but many audits occur at least two years after filing. There's no way the IRS would hold up refund checks that long. Besides, the Internal Revenue Code requires the IRS to pay interest on refunds within 45 days of filing or within 45 days of the due date, whichever is later. If the IRS had to pay interest on 75 million refund checks, the cost would be enormous and would far exceed (by billions) the interest that is now charged back to taxpayers on the ADDITIONAL taxes that are now due from the audits of the 1 1/2 percent.

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© 1986, 1998 to 2002, Jack Warren Wade, Jr.