IRS Commissioner Dispels ‘Audit Lottery’ Myth

In a speech at the National Press Club in Washington, D.C., IRS Commissioner Doug Shulman described the IRS’s sophisticated measures for identifying taxpayers to audit.

By Steven N. Klitzner


Don’t let Internal Revenue Service Commissioner Doug Shulman hear you use the “audit lottery” phrase.

You know what I’m talking about. You’ve probably heard it at a party or over a conference table. Or maybe you’ve used that phrase yourself.

“Audit lottery” stands for the perception that the IRS selects taxpayers willy-nilly to audit.

Got audited? Then you’ve got bad luck!

But the audit lottery is a myth, Shulman maintained.

During a recent speech at the National Press Club in Washington, D.C., the head of the IRS took on that myth directly.

“Although I sometimes hear people refer to the IRS ‘audit lottery,’ the process is far from random,” Shulman said. “The IRS uses the cumulative knowledge and data over many years to model the risk of tax avoidance, and using these models we target our activities as precisely as we can.”

Pay close attention to that quote, particularly this phrase: uses the cumulative knowledge and data over many years to model the risk of tax avoidance.

It’s not a lottery. It’s a formula!

I want to emphasize this, because it’s important. The IRS knows, as should you, that very few people have original ideas of how to cheat on their taxes. Most people who cheat follow the advice of someone else, creating patterns in the returns that the IRS’s computers can identify and refer for review by an IRS agent.

Just as Google uses an analytical process to determine rankings of websites when you search using a keyword, the IRS uses computers to identify taxpayers whose filings fit with known patterns of tax-evading behavior.

“Our systems sift through millions of returns and billions of data points to identify questionable returns, such as those fraudulently claiming refundable tax credits,” Shulman said. “Increasingly, we are also consulting other databases to spot inconsistencies on the return. As a result of our efforts, we block billions of dollars of refund claims before they are paid out so that we can verify the accuracy of the claim.”

“In some cases, the taxpayer simply forgot to attach the required documentation. In that instance, once sufficient information is provided, the refund is issued. In other cases, the claims are fraudulent, often part of organized rings of tax cheats, sometimes even run out of prisons. Our success rate in blocking these claims is very high and only getting better as we improve our capabilities, and stay ahead of the schemes.”

Now that we’re into a new tax year, I urge you to keep in mind that the IRS not only has a watchful eye – but it also has computers using analytics to identify tax cheats. Do you still think you can get away with cheating?

Steven N. Klitzner is a Certified Tax Resolution Specialist, a member of the American Society of IRS Problem Solvers, and an Aventura attorney. You can contact him at 305-682-1118 to obtain a free subscription to his newsletter titled The IRS Times & Inquirer.

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