The taxpayers most likely to get audited

Sarah Gardner Apr 2, 2012

Stacey Vanek Smith: It is tax time. That means finding all of those receipts and pay stubs — and of course, praying that you don’t get the dreaded audit.

Sarah Gardner now reports on who gets audited and why.

Sarah Garnder: The IRS audits just a little over 1 percent of tax returns every year. And yet, the mere thought of it…

Seinfled clip: Have you ever been audited? It’s hell. It’s the financial equivalent of a complete rectal examination.

Yep. On “Seinfeld” Jerry gets audited after donating $50 to a fake charity. Well, in reality, a measly 50 bucks won’t raise an IRS eyebrow.

But claiming, say, a third of your income in donations to world peace and hunger probably would. Roberto Sedano of Long Beach, California’s been audited in real life.

Roberto Sedano: The feeling wasn’t the most pleasant.

Sedano got a letter from the taxman after claiming his mom and dad as dependents….

Sedano: At that point we’re all living together. I was still single and I was covering most of the expenses so that’s how I ended up claiming them.

Sedano says he won that one after supplying the IRS with affadavits and other documents. But veteran tax agent Joseph Anthony says more common on the IRS hit list: the self-employed.

Joseph Anthony: Schedule C filers are really big targets because Schedule C filers seem like they’re having a lot of fun sometimes.

Anthony says he’s seen enough audits to conclude a few things. One, the IRS believes the self-employed cheat, under-reporting income and claiming expenses that aren’t strictly work-related. Two, regardless of your employment status, a lot of round numbers or double zeroes will raise red flags. So will tax returns that report business losses years after year. And three, the more you earn, the greater your chances of a tax man encounter.

Anthony: Because after all, you’re where the money is.

Anthony’s advice? Keep careful records, log your mileage, keep all your receipts — IRS agents still favor the paper kind, he finds. And don’t brag about your clever tax tricks on Facebook. IRS agents use social media too.

I’m Sarah Gardner for Marketplace.

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