Brady and Associates, LLC

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Newsletter                                Summer 2007

IRS To Re-introduce Random Audits

The IRS plans to revive its once-controversial practice of randomly targeting thousands of taxpayers for audits beginning this fall. The goal is to help the IRS do a better job of combating tax-dodging.

The first audits will start in October and target about 13,000 income tax returns for the 2006 tax year, selected from various income categories. The IRS says it expects to conduct random audits on similar-size groups in subsequent years.

The audits come at a time when the IRS faces intense pressure from Congress, struggling with large budget deficits, to reduce the nation's tax gap, which the IRS estimates to be around $290 billion.

Random IRS audits have a long and highly controversial history. IRS officials say the new wave of audits will be less burdensome than a program in the early 1990s that attracted intense criticism for being overly intrusive and time-consuming for many taxpayers. Accountants say the IRS often challenged nearly every item on a tax return and ordered taxpayers to produce large amounts of supporting documentation, even for minor items.

 

New recordkeeping requirements for Charitable Contributions

You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution.

You cannot take a deduction for clothing or household items you donate after August 17, 2006, unless the clothing or household items are in good used condition or better.