•  A.J. Cook - A.J.'s Tax Fables

A. J. Cook A. J.'s Tax Fables

With quantity shrinking, IRS goes for quality audits

Taxpayers who have been staying up nights worrying about the reduced number of Internal Revenue Service audits can relax. The IRS has other ways of catching cheaters.

Chances of an individual being audited last year dropped to less than one in 200. This might be because of the drop in agency employees, 16 percent since 1990.

IRS Commissioner Charles O. Rossotti says, unfortunately, these facts deceive people into thinking they can get away with cheating. The reason for fewer face-to-face audits comes from the IRS's expanded technology and innovative ideas.

Examples of what the agency is doing include monitoring mail coming to U.S. residents from Swiss banks to find people hiding unreported income; increasing the use of the document matching program; pressuring companies to police tax scofflaws, like threatening audits of restaurants and other businesses if the operators fail to supervise reporting of tips by employees.

Also, the agency is more selective in whom it audits. It targets people and businesses where it sees more opportunity to find taxes. So it's going after small businesses, people who deal in cash and high cash occupations such as cab drivers. It measures success by the number of returns where it increased taxes out of the total audited. By that measure it hits the bull's-eye in five out of six examinations.

It's good the IRS continues to retool into a modern tax-finding machine. Collecting taxes on unreported income means everyone pays a fair share, not just honest citizens.

The moral: Fewer audits hopefully mean better audits.

A. J. Cook, lawyer and accountant, is counsel with the law firm of Waring Cox PLC.