alimony, and people whose mortgage loan applications show different income from what was reported on their tax return. National projects. Every year, the IRS national office decides that certain occupations merit audit attention. Past favorites have included airline pilots and flight attendants, physicians, and morticians. Perennial targets are operators of cash businesses, such as bars and laundromats, food servers, cabdrivers, and owners and employees of gambling establishments. This program is being phased into the MSSP audit, d escribed above. The IRS receives several clues to your occupation. W-2 and 1099 forms filed by others might indicate it. You are required to state it on your tax return. If you are self-employed, you must list a six-digit business identification code. Some people have tried creativity here, such as the prostitute whose return stated “public relations.” She was fined by the IRS and could have been criminally prosecuted when the auditor learned the exact nature of those relations. Misstating the source of your income is illegal, even if you report all of it. Prior and related audits. Audit lightning does strike twice. Previous IRS audits often beget new ones—if they produced tax bills of at least several thousand dollars. But this is not a sure thing. I have seen people audited and hit with an enormous tax bill who never hear from the IRS again. If you are a partner, limited liability company member, or shareholder, and the business
Chapter 3 | winning your audit | 49
entity or any others in it are audited, you may not be far behind. Criminal activity. Like grapes, trouble usually comes in bunches. If you are investigated for a drug crime or crime involving a lot of money, the IRS may be tipped off by the law enforcement agency and decide to audit. The tax code is morally neutral—it requires that all income, from sources legal or otherwise, be reported. The IRS doesn’t care if you made the money as a Mafia hit man as long as you declare it. If you’d prefer not to disclose the source of income, you can file a Fifth Amendment tax return on which you claim your Consti tutional right against self-incrimination. You enter the amount of your income on your 1040 Form and write Fifth Amendment next to the lines where you list the source and where the form asks for your occu pation. While this may keep you out of the criminal investigation division of the IRS, it undoubtedly increases your audit potential. caution Never file a Fifth Amendment tax return without first consulting a tax attorney. Amended tax returns. You may file an amended tax return any time after you file an original one. The IRS has discretion to reject amended returns, but it usually accepts them. A few people file amended returns and wind up owing more in taxes, but most people amend their tax returns to get a refund. To get a refund, you must