John R. Bullis: E-filing and filing late don’t increase risk of audit

It’s great to have that income tax return filed. Maybe you can relax and take a deep breath now.

But what if the IRS has questions or selects your return for an audit?

The deduction for Office in the Home for the part of your home that is regular and exclusive business use is not an invitation to the IRS to audit your return. There is even a “safe harbor” that can be used. The IRS understands how important that home office is to many taxpayers.

Some folks think the IRS is more likely to audit returns filed electronically. That is not true. The electronic filing has reduced some of the common mistakes that used to generate IRS letters and inquiries. Returns that are questioned and/or selected for audit usually have some entry that is unusual.

Does filing after April 15 with an extension increase or reduce the likelihood of being audited? Probably not. Most returns the IRS is looking at closely now are for 2010 and maybe 2011. The 2012 returns will be processed and held until after Oct. 15. Then the IRS will begin looking for which ones need more explanation or seem to be not making sense.

The IRS randomly audits a small number of returns; I hope you never have your return chosen that way. The IRS verifies everything on the return and goes into great detail. It uses the results of those random audits to decide whether it should audit more barbers, waitresses, doctors, business owners, etc.

A few years ago, one of our clients suffered that random audit. The IRS visited the taxpayer’s home to verify the square footage of the business office (and all expenses). It turned out all was fine and the IRS closed the audit with only a small adjustment for some meal expenses, as I recall. The problem was, it took so much time.

It seems every month or maybe every week there is a court case regarding what the IRS calls frivolous returns. “It’s not real money” or “not constitutional” or similar arguments are presented and routinely found erroneous by the court. In addition to the tax and interest, there are some big penalties assessed for “unreasonable” positions and “interfering with the tax laws.”

Only a small percentage of returns is audited each year. It’s just a bother, nothing to be feared or worried about.

Did you hear? “Never slap a man who’s chewing tobacco.” — By Will Rogers

John R. Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.