Question

Campbell's tax return was audited because they failed to report on their tax return interest they earned. What IRS audit selection method identified their tax return?

a) Clearly define the circumstances of Campbell's tax return audit and the omission of interest income.
b) Instruct the respondent to identify and explain the specific IRS audit selection method that led to the scrutiny of Campbell's tax return.
c) Encourage a brief explanation or rationale for the chosen answer, demonstrating an understanding of IRS audit selection methods.

Ensure clarity in the question to prompt a thoughtful identification and explanation of the IRS audit selection method related to Campbell's tax return.

Answer 1

Campbell's tax audit was likely triggered by the IRS's automated underreporter (AUR) detection system, which uses information from third parties to identify discrepancies in reported income. So, the correct answer is c) Encourage a brief explanation or rationale for the chosen answer, demonstrating an understanding of IRS audit selection methods.

Step-by-step explanation:

The circumstances around Campbell's tax return audit due to the omission of interest income may be attributed to the data-matching programs utilized by the Internal Revenue Service (IRS).

When financial institutions report interest income to the IRS through forms like the 1099-INT, the IRS's automated underreporter (AUR) system can detect disparities between the income reported by taxpayers on their returns and the information received from third parties.

Therefore, the specific IRS audit selection method that likely identified the omission of interest income in Campbell's return is the automated underreporter (AUR) detection system.

This system uses advanced algorithms to compare data from various sources and flags discrepancies for review.

Such a method of selection is designed to identify tax returns that may have inaccurately reported income, ultimately increasing the efficiency of the audit process and ensuring tax compliance.

The chosen explanation is rooted in an understanding of how the IRS enforces compliance through technology, which can automatically trigger audits in cases of mismatched data, even if the omission was unintentional.

So, the correct answer is c) Encourage a brief explanation or rationale for the chosen answer, demonstrating an understanding of IRS audit selection methods.