A Washington teacher says he starts feeling "anxious" as soon as he drops his income tax return in the mail.
He considers himself an honest man. But he operates a small real estate business on the side, which makes his return lengthy and complicated, and sometimes, he admits, "I cut a few corners."
So, not long after today's filing deadline, "I start looking in the mail. Will that tan envelope come that says 'audit'? Anybody who has a highly developed conscience always has a high sense of guilt."
His concern is not that the Internal Revenue Service will throw him in jail. "What I've done is not monstrous." His big worry is that, if he's summoned by the auditor, "He will wave his finger at me. And I'll feel guilty and blush."
It's a feeling that nags at him throughout the year. "One pays a price," he says, "for cutting a corner or two."
As it turns out, quite a lot of people who play it close with the IRS end up paying more than they expected.
Overall, your chances of being audited are not great. Of 90 million returns filed by individuals in 1979, the IRS scrutinized only 1.83 million. rThat's about 1 in 50.
But if yours is among those returns the IRS computer does pick for a closer look, you stand a strong chance -- 70 to 80 percent -- of paying more taxes, says an IRS spokesman. In 1979, audited individuals, as separate from companies, dug back into their pockets for an additional $2 billion in taxes and penalties.
That's only one reason the prospects of an audit sets taxpayers trembling. Moans the school teacher, who has gone through two:
"I resent the time it takes -- the week it takes to get a mass of records straightened out." Including the time he spends filling out the return, he says, "I don't feel I have two weeks a year to devote to paperwork for the government."
"It's the nuisance value," says Los Angeles tax lawyer Mary L. Sprouse, for six years an IRS auditor and supervisor. "Rummaging through littered drawers and boxes, piecing together jigsaw scrapes of paper, sorting, stacking, folding, stapling, bundling, adding . . . It's the time lost from play, from work. It's the potential for harassment that any person in power wields and the insecurity and resentment of risking your future enjoyment on an auditor's whim."
Then there's "the guilt we all feel, from some real or imagined sin, that keeps us looking over our shoulder."
And, she believes, it's "an invasion of privacy, a limited one to be sure, but one that might accidentally stumble on a secret part of us." Sprouse, who left the IRS a year ago, has put her experience in a helpful, entertaining new book, How To Survive a Tax Audit (Doubleday, 272 pages, $11.95).
"Fear is a prevalent fact," says Dean David J. McCarthy of Georgetown University Law Center, who headed a year-long, 10-city study of the IRS for the conservative lobbying group Citizens Choice. "The mere suggestion of an IRS audit," the 70,000-member organization chaired by Willard Marriott, Jr. reported on Capitol Hill last week, "triggers in many taxpayers, even those who are educated and well-informed, a knee-jerk reaction of intimidation and fear."
Many taxpayers, the study found, "deliberately paid more tax than they felt they legally owed, simply to avoid a traumatic encounter with the IRS . . . to undergo what they believed would be a protracted, expensive and emotionally harrowing audit."
A Washington writer with substantial travel expenses tends to under-report them, so that when he's called in for an audit -- as he has been twice in recent years -- "I can come on strong."
Despite its problems, these critics still see a need for the audit process.
"I have sympathy for what the government is trying to do," says the teacher, who has been nailed for "several hundred dollars" in two audits.
Citizens Choice, which sees the fear "based partly on fact and partly on illusion," recommends the formation of a taxpayer's bill of rights to be distributed "at the beginning of every audit," along with eventual simplification of the nation's tax laws.
"A core of people in this country knows very well what the tax law is and simply tries to evade it. It's important for the rest of the taxpayers to know that the IRS will not tolerate this. I don't think they want people to get away with it. To be fair, you have to keep the audit program in force."
When the IRS gets your return, it's put into the pipeline with the millions of others that pour in. Along the way, it's checked to see that it is complete -- Did you forget to sign your name? And for math errors -- not a reason for an audit. If you have a refund coming, your check goes in the mail. That doesn't mean you've escaped. The IRS has three years to get around to you.
Eventually your return is fed into a computer to be matched against a secret mathematical formula. If you score high against a number of variables indicating a probability of underpaid tax, your return is shunted off into the hands of a waiting auditor. That formula is so secret, says Sprouse, that even when she worked in the office where it was kept "I never got to see it."
Your chances for audit tend to increase the higher your income, because your return probably is more complicated. For 1979 individual returns, says the IRS spokesman, 1.14 percent of taxpayers earning under $10,000 were audited; in the over $50,000 bracket, 8.74 of the returns were checked.
At the same time, says Sprouse, the IRS is wary of such "difficult-to-prove" deductions as casualty losses and cash contributions, which may catch the computer's eye. Other IRS targets: depreciation ("commonly misunderstood"); educational travel; bad debts; automobile, entertainment and gift expenses; hobby loses, vacation rentals.
But even if you pass the computer test, you're still not home free. Periodically, the IRS selects at random a small group of returns for audit. pThe purpose is to see what sort of exemptions and deductions an average taxpayer claims. Called the Taxpayer Compliance Measurement Program, the results are used to compile the computer's "secret formula."
If an audit letter does arrive in the mail, don't panic, say the experts on both sides of the auditor's desk. You may turn out to be among the 20 to 30 percent of audited taxpayers who either pay nothing more -- or even go home with extra bucks because the auditor has found an error in their favor. With proper records, you could be in and out of the office in an hour. If you disagree with an auditor's findings, you can appeal, though that could end up costing you accountant and lawyer fees.
Sometimes an audit can be completed simply by submitting a few records by mail. Otherwise, you probably will be summoned to one of four offices in the Washington area: Wheaton, Suitland, Bailey's Crossroads and downtown Washington. The letter generally will tell you what items the IRS is questioning and what records to bring in. Auditors go to businesses when there are too many records to transport.
When you walk in, forewarns Sprouse, "an auditor is looking for any sign the taxpayer can't be believed. There are clues to that in the taxpayer's demeanor. Is he hostile and defensive? Or is he cooperative? That's sort of an indication the person doesn't have anything to hide."
And, she points out, "You are at a disadvantage. The auditor has all the advantages. The burden of proof is on the taxpayer." There is also the psychological edge that if the computer has picked you, the odds are your return is faulty.
The IRS denies that its auditors work on any quota system to produce specified sum. But, says Sprouse, as an auditor "I believe you feel some pressure to produce, to show you know what you're doing." An auditor "feels satisfied" finding $300 to $500" added taxes in an individual's return.
Obviously, good records are critical in making it successfully through an audit. But what about the many taxpayers who find it too bothersome to keep every scrap of paper?
If you can argue a reasonable case, says Mike Tuchman, chief auditor for the American Red Cross who prepares tax returns for private clients as a sideline, an auditor will allow much -- if not all -- of your deductions without specific documentation.
As an example, he says, transporation to the doctor is deductible. If you go by Metro or taxi, you're not going to keep a receipt. "Nobody does that." But if you have a doctor's bill for $3,000, that should be acceptable proof that you made at least most of the medical trips you claimed.
Auditors can't help but seem like ogres to he taxpayer, but, says Sprouse, "the majority are trying to follow the guidelines and trying not to be abusive. I know that I'm a decent, honest person, and I tried to be fair."
"Generally," agrees Tuchman, "the auditors I've run into have been fair."
But that doesn't keep him from believing that an audit is all a big game -- "a game with the good guys against the bad guys."