Be aware of a new IRS audit plan

Recently, the Internal Revenue Service proposed a new audit plan to Congress.  The project, dubbed the National Research Project, calls for approximately 50,000 special data-gathering audits.  These audits will target 2001 returns, beginning this fall.

The Service uses various programs and techniques to determine which returns are audited, including statistical analysis.  The IRS plans to use the statistics collected in these audits to design new standards for its audit selection process.

In light of this proposed audit project, here are some reminders.

• File a complete and accurate tax return.  It's the law to file a complete and accurate return.  These proposed special audits are another reason for doing so.

• Keep good records.  It's the law to keep records that substantiate the income and deductions claimed on your return.  If your return is selected for audit, you can prevent audit adjustments and possible penalties by having appropriate supporting documentation.

• Take the deductions to which you're entitled.  You shouldn't shy away from claiming legitimate tax deductions just because your return could be selected for audit.  However, you should be diligent in retaining records that prove your deductions in case the IRS audits your return.