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Can you 'audit proof' a return?

November 09, 2009

Tax lawyer Ron W. Wood lists "Ten Ways To Audit Proof Your Tax Return" at Most of the advice is sensible ("Don't claim flaky deductions").

One piece of advice, though, doesn't compute to me: "Don't file electronically."

The cost (in time or fees paid to professionals or software providers) may be lower. You save paper, and you don't deal with the post office.

Yet you are giving the IRS easy electronic access to information it would otherwise have to enter, enabling the agency to examine your return and mine the data more easily than it otherwise could.

Seeing that returns done by preparers will have to be e-filed after 2010, this is pretty much academic. I don't think e-filing matters much though, and his next piece of advice actually helps contradict his e-filing point:

Check your math.

... If you do make a math mistake, you are likely to get a math correction notice from the IRS. This isn't an audit. But your goal is to minimize such interaction with the IRS bureaucracy, which isn't known for the best mail handling practices.

Every time you send a manual return, you interact with IRS employees who can trigger further investigation. That worries me at least as much as IRS data-mining software.

If you really want to avoid an audit, you can do so by having all of your income on 1099s and W-2s and accurately reporting them. That means you can't run or own a business -- not a great tradeoff for the entrepreneur. Rather than worrying about being audited, it's far better to keep good records, hire a good tax pro, and do the returns correctly. Then you don't have to lose sleep over being audited.

Via the TaxProf.

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