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Audits from Hell return

Actually, these audits have been around for the last few years. But the IRS just keeps tweaking -- and renaming -- them.

Hell_road_sign_2 OK, the IRS never called them Audits from Hell. Even a government community relations officer knows that's bad PR.

When the random audits were initiated back in the 1980s, they were part of the Taxpayer Compliance Measurement Program (TCMP). But the demonic name stuck because the "measurement" was a very thorough examination of your return, requiring you to substantiate every single entry, line by line, and prove each deduction, regardless of how small.

Many of the victims taxpayers found that the cost of defending their legitimate write-offs was much more than their actual tax bill.

Kinder, gentler IRS: By the late '90s, Congress decided it was time for an image change and taxpayers got a break.

As part of the IRS Restructuring and Reform Act of 1998, the kinder, gentler IRS was told to focus on taxpayer rights and the TCMP audits were discontinued a few years later.

But the agency still wanted to track our taxpaying habits. So the National Research Program (NRP) was born.

This audit mechanism examined more than 45,000 randomly selected returns for the 2001 tax year. Not as many taxpayers were hauled in for the full exam under NRP and there wasn't a major public outcry about the program.

The NRP, though, is how the IRS discovered the tax gap. And now, with that gap growing, Uncle Sam once again wants to know how we pay our tax bills, or rather, how we get away with not paying what we owe.

Watch your mailbox: So this month, the IRS is sending out notices to around 13,000 individual taxpayers expressing the agency's interest in their 2006 returns. The agency will continue what it now calls a "special audit project" for tax years 2007 and 2008.

The selection process is again random, but the IRS acknowledges that returns are chosen from "various categories." It's not saying just what those categories are, but you can expect the IRS to look at groups it believes are most likely to underreport income. That includes self-employed individuals, independent contractors and folks with substantial capital gains and losses.

The IRS also says it has done its best to minimize the pain of the new audits. In some cases, examiners will be able to verify everything via computerized comparing of what the taxpayer put down on the return against what was reported to the IRS by third parties (financial institutions, employers, etc.). Other taxpayers will be able to tell the IRS what it wants to know by mail.

And all told, 13,000 returns represent less than one-tenth of one percent of the 135 million individual filings the IRS receives each year. "The sample size is as small as we could credibly make it to minimize the burden on taxpayers" Mark Mazur, director of research, analysis and statistics for the IRS, told tax publisher CCH.

Fire Not quite as hot: OK, so your chances of getting picked are not that great.

And the Audits from Hell have evolved into Audits from Purgatory.

Tomato. Tomahto. The fact is, you don't really care what name the IRS uses if you happen to be on the examination list.

So just in case, make sure you know where your 2006 tax documents are. And if you are unlucky enough to be one of the chosen, contact a tax professional as soon as you get the letter.


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