Want an inside tip on how to avoid an audit?
Here it is, straight from the pen of former IRS historian and current IRS critic Shelley Davis. In a $69-a-year newsletter, "Tax-Wise Money," to which she contributes, Davis divulged that taxpayers could avoid an audit simply by taking advantage of the automatic four-month extension of the filing deadline available to those who file Form 4868."By filing for an extension," she explains, "you remove your tax return from the routine processing cycles of the IRS." Take your return out of the cycle and the computer can't select you for an audit.
In its elegant simplicity, the move sounds plausible. Unfortunately for the newsletter's subscribers, Davis couldn't substantiate her claim, and a number of other IRS watchdogs say it's not true.
Whether filed in February or August, every return is run through an IRS computer that assigns it something called a Discriminate Information Function score based on the levels and types of income and deductions claimed on the form. Returns that score above a certain threshold are selected for further review. The exact parameters for DIF scores are among the IRS's most closely guarded secrets.
"The computer does the same job whether it's April 15 or August 15," says Martin Kaplan, a New York City CPA and author of "What the IRS Doesn't Want You to Know."
"Even if you file for an extension," he explains, "the computer still recognizes a bad-looking return."
Then it's up to human eyes to determine whether a red-flagged form will get audited. About 10 percent of high-DIF-score returns are chosen for further examination. The remainder blithely continue through the processing system.
"If you're going to file a return with a high audit potential," Kaplan says, "don't count on an extension to bail you out."