John R. Bullis: Home-office tax deduction won’t result in an audit

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

But what if 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 — usually the sole-owner business.

Some think the IRS is more likely to audit a return that is filed electronically. That is not true. The electronic filing has reduced some of the common mistakes that used to generate IRS letters and inquiries.

I’ve heard some folks think filing a paper return (not filing electronically) may be less likely to invite an audit because the IRS has to input information into its computers. I don’t think that is true, either. Returns that are questioned and/or selected for audit usually have some unusual entry.

Does filing after April 15, with an extension, increase or reduce the likelihood of being audited? Probably not. Most returns being looked at closely by IRS now are for 2010 and maybe some for 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 on the face of it seem to be not making sense.

The IRS selects a very small number of returns for audit by true random sample.

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

It seems every month or maybe every week there is a court case regarding what the IRS calls frivolous returns. The “it’s not real money” or “not constitutional” or similar arguments are presented and routinely found erroneous by the court. Then, 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.

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