IRS Audit Report

The IRS is focusing their attention on the heavy fraud area of the First-Time Homebuyers Credit. The IRS is auditing every First-Time Homebuyers Credit by reviewing documents attached with every credit claim. These audits are considered letter audits, where the IRS sends you a letter if they see something they don't like or want more information. My experience is that the IRS asks for more information or verification in about half of all claims regardless of the documents sent with the original return.

Do not get lax, however. The IRS is still conducting field audits, where the audit is done face-to-face, as usual. Revenue has hired 18,000 additional auditors recently and we will see a steady upward trend in field and letter audits over the next several years.

There are no bullet-proof ways to avoid an audit. Therefore, it is more important than ever to keep accurate records. Small businesses must keep written logs of their meal and entertainment expenses in addition to other receipts. Individuals should pay special attention to charitable contribution records.

You can read more about preparing for an audit here: Preparing for an Audit, IRS Audit Procedures, and The IRS Audit Process.