Don't Panic! It's Just the IRS

Tax audits are not fun but don't have to be overwhelming.

The IRS expects some 120 million tax returns through the door this year. Thousands will be flagged for a detailed examination - what taxpayers call an "audit."

Fortunately, the likelihood of an audit is down slightly. The recent high water mark for audits was fiscal year 1988, which had an audit rate of 1.53 percent of all returns. That level fell to below 1 percent in fiscal year 1993 but has been creeping up ever since.

IRS agents expect to audit 1.18 percent of returns this year.

Some points to consider, if an IRS agent does come knocking.

*Don't panic. Most audits are really just questions about isolated items on your return. The agency may, for example, want receipts or a log to document repairs on a car used for business. As best you can, reconstruct how you put your taxes together. Many inquiries are simply mailed to the taxpayer. Answer them as directly as possible.

*Take all corroborative documents if you visit an IRS office. Show how you reached your conclusions. Tax lawyers say don't be chatty. Stay focused on the return at hand, and don't volunteer extra information, particularly about prior tax years. The IRS agent probably wants to resolve the uncertainty as speedily as you do.

Experts suggest you always go to the IRS office. Don't let an auditor come to your home. She or he may wonder how much the drapes cost.

*Bring along your tax preparer, if you have one. The preparer can talk tax lingo and explain how decisions were reached. You could also bring a tax attorney.

*Don't give approximate answers. If you don't have the answer to a question, ask for a day or so to dig out the information. Giving false information is illegal.

*Appeal. If you dislike an auditor's conclusion, ask for a cross-check from a supervisor. After that, you have 30 days to ask for a hearing by an appeals officer.

*Appeal some more. You can take your case to the US Tax Court, a federal district court or claims court. But that costs money.

If you really feel flummoxed, get a copy of "How to Beat the IRS At Its Own Game," by Amir Aczel, published by Four Walls Eight Windows, 39 West 14th St., New York, NY, 10011. The book includes a copy of the "Taxpayer Bill of Rights," a list of taxpayer rights adopted by Congress in 1988. The book costs about $11.