IRS program notifies taxpayers of mistakes before audits

An IRS audit can conjure fear in the majority of Americans and even the tiniest of mistakes can trigger a more skeptical look at taxpayer returns. However, a new pilot program launched by Uncle Sam will notify taxpayers of mistakes or discrepancies on their tax returns long before they get wind of a future audit.

The new pilot program, which falls under the umbrella of the IRS Automated Underreporter Program, will mail notices to consumers if there are inaccuracies on their tax returns, according to The Wall Street Journal. The program is designed to educate taxpayers on common reporting errors and prompt them to correct their returns quickly. Because of this, no response or action is required if consumers receive these notices from the federal tax agency, the Journal reports. The IRS hopes the program will improve voluntary compliance.

The Treasury Inspector General for Tax Administration has heralded the program as an effective tool for lowering the tax gap and and raising awareness among consumers.

"I commend the IRS for using a creative alternative approach to address compliance issues in an effort to reduce the tax gap," said TIGTA Inspector General J. Russell George in a statement.

Notices would be sent out if discrepancies are found between a taxpayer's return and other documents issued by third parties. This rule may apply to capital gains, dividends or interest on 1099 forms, as well as 1098 forms for mortgage interest.

The program is expected to reduce the number of audits the IRS conducts each year by urging Americans to make simple corrections themselves. In some cases, IRS systems can catch and correct small mathematical errors made on tax returns themselves, but in more complex cases, harmless errors may trigger a correspondence or in-person audit. Taxpayers who do receive audit notices are advised to gather documentation supporting the information on their tax returns and, if warranted, contact their tax preparer or a tax attorney to speak on their behalf.

Most audits are harmless and can be cleared up quickly, but it's still important that consumers double check all the information listed on their returns and explore any potential issues or inaccuracies. In addition, individuals who are claiming a significant amount of deductions and credits, especially those relating to home office deductions and charitable giving, should keep organized records to back up their claims.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

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Posted To: Tax Ranger's Blog By: Tax Ranger On: Thursday, November 03, 2011
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