Avoid An Audit: Don’t File Electronically

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I was doing some business tax research today and ran across this interesting tip for avoiding an audit – don’t E-file. Here’s why. The way the IRS determines if you are to be audited is through a computer algorithm that churns through your numbers for certain red flags, like too many deductions or a difference between what you typed in and what they have on their W-2s and 1099s. Now, 100% of all E-filers are analyzed since it’s all ready to go. But for physical mailed-in returns, the IRS has to hire tons of data-entry people to manually type in each one. This is expensive, so reportedly less than half are actually transcribed. No computer = no audit.

Now, I don’t know if this is true, but it makes a certain amount of sense to me. Of course, this may delay your tax refund. But I’d trade that for a smaller chance at an audit anytime.

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  1. Does this mean you are not going to use efile?

  2. I haven’t fully decided yet, but right now I’m 95% no e-file. Especially if the IRS is going to charge me for it. Stamps are cheaper =)

  3. I changed my original post’s phrase “pen and paper returns” to “physical returns”. This was inaccurate because I fully intend on using tax software to do my returns, I’m just going to print it out and mail it in instead of doing it electronically.

  4. I don?t know. That sounds hinky to me. They have 3 years from the date your return is due (or filed, whichever is later) to perform an audit. I can?t imagine that in 3 years your return does not get entered into their big black box some way. Optical Character Recognition has come a long way? Who is running the IRS these days anyway?

    Besides if you haven?t done anything wrong an audit would be kind of?fun? At least you would have good blogging material 🙂

  5. I’ll never need blogging material THAT bad.

    I doubt OCR on handwriting is that good, but perhaps on typed or computer-printed forms. Hmm… now I must turn in handwritten forms. But maybe they audit all messy returns, so I still have to be neat. I feel like a conspiracy theorist now!

    Just kidding, I’m way too lazy to do all that, but I still won’t e-file if only to protest that they charge for something that clearly saves them money and increases efficiency. It’s like charging me to sign up for direct deposit.

  6. I send in a paper copy and I still got audited. I think they usually pick people that don’t make any sense, like for me I paid 20k the first year in business, and made 600k the next year, so I got audited for the first year. Just don’t lie and you won’t have any problems.

  7. I use TaxACT to do my Federal return. I don’t e-file for the exact reason you gave. It lets me print out the 1040 for free (instead of charging me $8-12 to e-file). I then do my state taxes for free electronically on the state’s tax website.

  8. I have never e-filed and don’t plan to until it starts to cost less than a stamp. Now I have another reason!

  9. I filed last year with TaxACT (e-file) through an IRS link. The filing was free for federal! ( IRS LINK ). Dont understand why people are talking about paying for federal returns.

  10. Yeah, I would say 20 to 600k would be a red flag. I changed my mind, THAT would worth an audit. 😉

  11. Free is TaxAct says

    E-file via tax Act is free this year too.
    They also dont have any restrictions based on income.

    Just an FYI to people who want to save the 39cents on stamp.

  12. This makes a lot of sense to me. Maybe I will stop e-file moving forward 🙂

  13. I’ve always e-filed and I’ve always e-filed for free. Now granted I’m a college student so my AGI isn’t over the $50,000 limit (sadly.. :() and I’m under 50. I’ve always used H&R Block’s site and I get it for free. This year I had to jump through 1 hoop, sign up for a new user name. If you use the same one as in the past it wants $19.95 from you.

    For free e-file info visit the IRS site @ http://www.irs.gov/efile/article/0,,id=118986,00.html

    BTW, with regard to free e-file, I’ve also never paid a dime for the tax software. I use it all online and totally for free.

    Now off to transfer my 100% refund into HSBC since they’ve already direct deposited it for me since I e-filed. 😉

  14. Here is a hint for all you technical people out there – they are called scanners. All they do is feed the return through a scanner and software can automatically place your information into the appropriate boxes. (And if any of you guys do those state returns that have barcodes, they scan those for your numbers/information too)

    Especially for those of you who use tax programs, they print all the numbers on the same lines, no matter what, and they print them in nice language that complies with the IRS requirements for E-file. (Since they take that information and place it into their computer electronically. In some places or whatnot, they want brackets instead of dashes/minus signs).

    As for not E-filing because of costs, I would agree with you that if it cost me anything, I wouldn’t E-file; however there are many programs that allow you to E-file for free. And the best part about this is that you can E-file your return on Feb. 1st or whenever, but tell them not to withdraw funds from your account till the 15th of April (or in this years case – the 17th as that’s the next business day). Then, no more worries about your taxes, no standing in line at the post office, or praying and hoping that your return made it to them (and do as I and my parents had done in the past, mail return receipt request – which costs more money).

  15. This could NOT be true.. they have to enter your info into IRS computer in order to print you a check or to give you a credit..
    They may not be entering everything but definitely the basic info like total earnings and deductions which is enough to determine if they need to audit your case.

  16. For those who want to it the good’ol way..
    An excel based program to prepare your 1040


  17. Re: Scanners

    The paper the 1040 is printed on is too thin for it to be reasonably scannable. Scanning it even on a low setting would yield poor results, as the light from one side would show up on the other.

    I still think that the old-fashioned way is best. Not only does it cost the price of stamp, but I don’t feel comfortable trusting H&R block and such companies with my personal information. Here’s one reason why:


    Soon your tax preparer, like other businesses, may start selling your financial information to the highest bidder. And it’s not like they’re just selling any old info. Your tax return has your social security number and other private details like how many kids you have.

    Further, I don’t trust sending my social security number over the Internet to any place other than the secure encrypted pages of government websites, my bank’s site, and my college’s server.

  18. Jonathan, the IRS uses scanners with OCR. For sure they are scanning electronically printed returns. I’ve heard they also scan handwritten ones as well. So I don’t think this is valid advice. See this article from 1994:

    The paper the 1040 is printed on is too thin for it to be reasonably scannable. Scanning it even on a low setting would yield poor results, as the light from one side would show up on the other.

    If you have a scanner with a black lid (or put a black sheet of paper on top of the sheet to be scanned), the light will not bounce back through.

  19. Last comments were 2006, are you still holding fast to not participating in the lie? That “save a stamp file by computer” line is being eaten up by the masses like candy now. And how about the “go green” one? Really? I don’t think so, maybe it’s because I DO think.
    What expends more cash and energy? A computer and the internet and one more lousy minute in front of it or a pen and a piece of paper and a 46 cent stamp?

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