Welcome Guest! You aren't signed in. Sign In

My Q&A All Q&A
Go

Landertax

TaxAlmanac

0 watching

Is audit risk greater with electronic filing vs. paper

See original discussion at http://www.taxalmanac.org/index.php/Discussion:Is_audit_risk_greater_with_electronic_filing_vs._paper


HI Folks,

I had to comply with the electronic filing requirement this year. For 2009 I did almost all of my returns by paper. My questions is doesn't the electronic filing give the IRS far more information to compare and contrast to find returns that should be audited vs. the manual return?

What are your thoughts?

Thanks and have a great Spring!!!

Art

( Asked 04/22/11 06:42 PM in TaxAlmanacViews by community 227 )

Answers (15)  Comments (3)  

JR1

TaxAlmanac

Far less risk, Art. Think about it. When processed on paper, there's a clerk somewhere entering info. Two problems, human error, which can then create an inquiry just because something's entered incorrectly, but the door is open. And then, the "Hey, Mabel, come look at this one...!" factor. Efiling, it's computer to computer. All the same matching is done regardless.

( Answered 04/22/11 06:47 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Ramcfo

TaxAlmanac

My thought is the risk is higher. When the clerks enter the info, they don't enter it all. My hunch is only certain limited info is entered. I would assume as part of the process there is also some sort of calculation done on IRS program verifying amount of refund. This prevents the data entry error.

( Answered 04/22/11 07:19 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

KathiJud

TaxAlmanac

I'm not sure I agree with that JR1. Does a paper-filed return get every scrap of data entered into the computer to create a complete return just like what we e-file? Or are the paper copies fed into a scanner to save a digital copy while the original winds up in a bin headed for the shredder. I suspect the latter is true and the computer only gets fed pertinent summary numbers. If what I suspect is true, then e-filing carries a much increased risk of scrutiny and audit.

( Answered 04/22/11 07:22 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Landertax

TaxAlmanac

For returns, especially schedule Cs with a heightened audit potential already, it seems to me that it is so easy to click the 8948 form election that the "taxpayer chooses to file this return on paper". I would much prefer to go manual and lower the risk of audit. So after thinking about it I have decided for those schedule C 1040s on extension and for next year, my own policy is for all schedule Cs to go manually.

Unless the IRS comes out and says specifically that there is no difference in audit potential, then I think clients are going to ask to go manual.

( Answered 04/22/11 07:47 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Okie1tax

TaxAlmanac

The client will go the way the preparer wants most of the time. Of over 800 returns this year only 2 specified paper.

( Answered 04/22/11 07:59 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

JR1

TaxAlmanac

Well, I've been at this awhile, and was not early adopter of all efiles..until I developed systems to save me time. Of course it's all about me. Now, I fire any client who refuses to efile without a really good reason, of which there aren't many. It's just dumb. Your chances of errors and mail from the gov go sky high. How do you know that what you did is what got sent? How do you know there are no errors in the return that will prevent proper processing? The efile process provides, let's see, one, two, three, four additional error checks off the top of my head. That's reassuring. I also like not getting gov mail in June, I like know that what I did is what went in, that it went in! Etc. etc. I just don't get why there'd be resistance to it by now. Oh, and the audit rate? Dang near zero now for years, except for the correspondence audit. I like that, too. Say what you will......

( Answered 04/22/11 08:17 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Barry Manilow

TaxAlmanac

Uh....the stats came out about a month ago (released from IRS), efiled returns ARE subject to higher audit risk. I think the article was in CCH weekly but I'm not gonna try to find it.

Wouldn't you expect E-file to have higher audit risk? W/ E-file IRS has access to 100% of the info and can process 100% of the info. With paper file IRS has access to 100% of the info but probably only utilizes 40% of the info.

( Answered 04/22/11 08:39 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

JR1

TaxAlmanac

Huh. Interesting, Barry. Well, like it matters. You want to be a tax pro, efiling is the mandate. You want to make more work for yourself by printing out and having all them mailed..it's your life. I expect tho', that there will be repercussions for tax pros where it just so happens that nearly 100% of your clients 'elected' to file on paper. Right.

( Answered 04/22/11 08:43 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

I'm not against e-filing, I was just reiterating what I read about audit risk.

Efiling is here to stay but it will take some getting used to. As mentioned above, I think the most important thing is to get a system that works for you and pefect the system in the off-season. You don't want to get caught learning to e-file with your pants down.

( Commented 04/22/11 09:23 PM in TaxAlmanac ,Views by community 228)

Joanmcq

TaxAlmanac

With the paper return, the IRS has way more info than with an efiled return. The returns are not shredded, but filed somewhere with the envelope attached. What gets into a transcript is what you get on e-services; very little info. None of what was actually entered for mileage data for example, just the total deduction. Agents ask for a copy of the return during audit because what they have doesn't give them much info regarding detail; a paper return has it all.

( Answered 04/23/11 06:55 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

JR1

TaxAlmanac

That's what I was thinking, too, Joan. In every audit I've been in way before or after efiling, the agent asks for a copy of the return. I always thought it was odd, and then realized that they merely drop certain numbers onto the software and then *brrrrrr* into the shredder. Hopefully. Or maybe *beepbeepbeep* trucks and forklifts back up and haul it to some huge warehouse. I really doubt that anything different goes in either on paper or e. The biggest difference is human eyeballs and fingers, and that's what I like to minimize.

( Answered 04/23/11 07:30 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

TATaxea

TaxAlmanac

why would there be a concern of an audit risk if the tax return was properly prepared?

( Answered 04/24/11 03:35 AM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Joanmcq

TaxAlmanac

I think the paper copies are available, but in a warehouse somewhere. The agents could get them, I guess, but it would take a long time. I did get copies of paper filed returns from an Idaho auditor during an ID audit, which was great because the taxpayer had no frikkin idea what he filed. One of those 'stimulus return' fiascos.

( Answered 04/24/11 05:11 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Belle

TaxAlmanac

Laura - I've had several no-change audits. Just because the return is prepared properly doesn't mean it can't/won't be selected for audit; either randomly (remember those line by line, economic justification audits?) or because legitimate deductions cause the return to fall outside the norms and generate scrutiny.

An audit can be time consuming, costly for the client, and generally intimidating (for the taxpayer at least) even with a properly prepared return.

( Answered 04/24/11 05:20 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Belle, me too. All I was saying is why be concerned about which is more likely to cause an audit because if the return is done properly there is no need to fear even a "totally waste of time" audit, The IRS is going to do what they are going to do, as you say, so to me it is a waste of time being concerned on what filing is more likely to trigger an audit.

What irritates me is the IRS auditing nothing because they don't look at the entire return before they question an entry. I understand the huge benefit to the IRS being able to query by computer and spit out letters to taxpayers without having to take the time of an actual human, but the down side to this is that, the computer should be flagging the return to a human to review before scaring the hell out of the taxpayer and making it look like we are making mistakes.

You know that the perception of the public is that the IRS is "God-like" so if they question a return the preparer must have erred.

Not to mention that the client gets charged by us because we have to prove that everything was correct in the first place. It just really frosts me.

( Commented 04/24/11 10:25 PM in TaxAlmanac ,Views by community 228)

Thank you all for letting me know your thoughts.

( Commented 04/24/11 11:11 PM in TaxAlmanac ,Views by community 228)

Tax Writer

TaxAlmanac

Paper returns are audited at a lower rate. Or at least they were in the past. That's from former IRS attorney, Paul Strassel, and his excellent book about the inner workings of the IRS. He advised taxpayers to file on paper, on the last day, because he said (the IRS denies this) that the DIF scores are adjusted up as the return volume increases. Filing on paper also increases processing time, which increases the chance that the IRS will blow the statute.

Since IRS audits always freak out clients, it's good to avoid one whenever possible. One of my clients (who is also a friend) actually had a panic attack from a CP-2000. It was a simple computer error, but she was very upset. People are afraid of the IRS. It's no accident, either.

( Answered 04/25/11 01:47 AM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Spell Czech

TaxAlmanac

Once upon a time, I was told that a way to judge a tax preparer was to ask him/her/them/it how many of his/her/their/its clients had been audited and how many of those had *lost*. If they *lost* at audit it was because the preparer had been *aggressive* which is a sign of a *good* preparer, right? Right?

( Answered 04/25/11 02:50 PM in TaxAlmanac ,Views by community 228 )

Rating (0):
This helped! Not too helpful.
 

Know the answer?

Submit An Answer

Just want to comment?

Add A Comment

Have a new question?

Ask The Community