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Tax Audits Go More Smoothly For The Rich

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Here's another way the rich are different: If they get audited by the IRS, they have a much better chance of dealing with an actual person.

According to Nina Olson -- a taxpayer advocate recently profiled at length in Bloomberg Businessweek -- the Internal Revenue Service has two ways of conducting its audits. One involves computers, and one involves real live human beings.

Increasingly, says Olson, what kind of treatment you get depends on how much money you earn. “We’re getting to a situation where the only people who will get face-to-face audits are the 1 Percent,” Olson is quoted as saying in Businessweek.

WIth the deadline for tax season approaching, Olson's work with the Taxpayer Advocate Service -- an internal division of the IRS that helps guide taxpayers through the labyrinthine tax code, and sorts out disputes when they arise -- serves as a reminder that for many Americans, paying taxes can be a highly impersonal experience.

Humans don't necessarily have to be involved for the audit process to get underway. Rather, audits often begin with a computer throwing up an automated red flag, according to USA Today. If a particular tax return appears to vary in a big way from others in the same income bracket or ZIP code -- if, for example, the computer notices a category, like charitable contributions, that's conspicuously different from the average -- that can mean an audit for the outlying taxpayer.

In a situation like that, the taxpayer usually hears about the audit by mail or by phone, which means things may not go smoothly. A full 27 percent of people who receive audit notices by mail can't tell from the letter that they're being audited, according to Businessweek. And 10 percent of all the mail the IRS sends out doesn't reach the right person.

The IRS's automated audit process is far from error-free. In 2010, the agency flagged some 300,000 returns for including mistakes about dependent children, according to CNN. In more than half those cases, the IRS ended up letting the returns stand as they were.

Wealthy filers are more likely to get one-on-one attention, according to Olson. The 1 percent may not enjoy the scrutiny of the IRS -- and they've been getting more of it lately, with audits for millionaires taking a sharp jump in 2011 -- but the taxpayer gets certain rights during a personal audit that don't come along with an automated audit, according to CNN. Someone who gets audited by phone or letter has fewer options when dealing with the agency.

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