Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, October 27, 1995 TAG: 9510270122
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: JOHN CUNNIFF ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
Thank goodness, you say, that the income tax collector has abandoned plans for superaudits of 150,000 unlucky taxpayers.
Yes, but don't relax. Economic reality audits, which try to match your lifestyle with your reported income and spending habits, will remain, and if they're not super they're certainly jumbo.
Such an audit, sometimes called a lifestyle audit, might take place after the Internal Revenue Service computers find an aberration from the norm in your return. If the tax examiner decides to proceed you'll never forget it.
The IRS ``Examination For Economic Reality'' lists evaluations that its personnel might make in an attempt to find the cause of the inconsistency. They include your home, neighborhood, furniture, clothing, jewelry ...
It's a long list: gifts, allowances to children, wedding costs, trips, hobbies, vacations, and on and on. You might not be incorrect in assuming that the IRS conducts this investigation because they think you're dishonest.
The mind-set, says Daniel Pilla, a St. Paul, Minn.-based tax litigation consultant who probably knows more about the IRS than Commissioner Margaret Richardson, ``is the taxpayer's hiding income.''
Having read through 600 pages of one manual, Pilla relates that if you are chosen for such an audit you might be asked to fill out a ``personal living expense statement'' listing your cash, check or credit card payments to the grocer, the clothing store, the barber shop, the gift shop, the travel agent, the gasoline station, the car wash.
While it is very unlikely you can account for all such expenditures, Pilla says you don't have to anyway, as the IRS has no legal authority to demand compliance. It has, however, the option of going to outside sources.
That means asking your bank, credit card company, friends, neighbors, adult children - a vast range of external sources of data, says Pilla. Such as: courts, credit reports, insurers, newspapers, employers, paid informants.
Having just concluded two radio call-in shows, he was asked the mood of the public. ``Frustration. People are forced to choose between feeding their family and paying taxes,'' he said. ``And they can't understand why things can't be simpler.
They have company - the IRS itself. The very agency that conducts such grueling tax audits apparently cannot pass an audit of its own finances.
In a 1993 Government Accounting Office report, says Pilla, the IRS failed to account for 64 percent of its Congressional appropriation, either because records did not exist or could not support $4.3 billion of expenditures.
``We are talking about the agency which holds you accountable for learning, understanding and following some 17,000 pages of law and regulation.''
by CNB