How to Outgun the I.R.S.

take it from this former i.r.s. insider--the taxman isn't so tough that you can't give him a real run for your money

So you want to outsmart the IRS--give it a run for your money for a change. Maybe you're just plain sick and tired of having your taxman tell you to sit down meekly and write out another tax check--a check that seems to be getting larger every year. You've had enough. Yet you're not quite ready to join the tax-protest movement. And you're definitely not willing to go to jail.

OK, I'll tell you up front: You've got a chance to win the game. As a matter of fact, a very good chance. You can outsmart the IRS without working up a sweat and keep most of the tax dollars you'd otherwise turn over to the Government.

How? Simply by being smarter than they are and not falling for the same old tricks they use every year to trap you into overpaying. Let me put it this way: It's you against them. True, they're good at what they do, but not that good. And they're certainly not nearly as good as they'd like you to think they are.

Let me sketch a portrait of the IRS we're up against. First of all, you're the enemy. That's how it views all taxpayers: liars, cheats, adversaries, foes. Taxes are their game. They're the pros and you're not. You're the inexperienced amateur. You have to play (continued on page 154)Outgun the I.R.S.(continued from page 147) their game by their rules--rules they've been known to change to suit their needs.

There are 90,000 of them with space-age, sophisticated computers at their finger tips, and they're just waiting for you to send in your return. They assume you're a cheat. They can smell it. They have all the statistics. As a matter of fact, they think they know exactly where you fudge on your return and by how much. They think they know everything about you. At least that's what they want you to believe. They spend 2.3 billion dollars a year to keep you thinking their way.

How can we even begin to fight back against such an awesome machine? And even if we try, won't they send all of us to jail? I've got terrific news. It's all a myth. Now, don't feel bad if you've fallen for the same IRS propaganda every year. Most taxpayers have. That's how the IRS has been able to keep us in line, voluntarily paying more tax than we should--more than is required under the law. It works hard at sustaining its negative image.

Sure, there are 90,000 of them, but only 28,500 are auditors. The rest of them support the auditors, one way or another, in their battle against 90,000,000 individual taxpayers and their returns. All totaled, there are more than 140,000,000 returns of all types filed each year. Plus millions of refund checks. If you compare us with them, they're hopelessly outnumbered.

But what about their computers and audits? Again, reduce it to the bare bones. The IRS lets nearly 98 percent of all taxpayers' returns slide through each year scot-free. Say you earn between $15,000 and $50,000 a year. Those returns are audited less than three percent of the time. Earn more than $50,000? Still, your audit risk is a mere one in ten. That means nine out of ten returns filed by those in the highest income groups are not audited. What if you're one of the high rollers who have placed their money in tax-shelter investments hoping to cut their tax bill? I know the IRS has put out a lot of press recently telling you how it's cracking down on tax shelters, and you'd really better stay away from those "shady" deals if you know what's good for you. It's simply another scare tactic. Three out of four tax-shelter investors never hear from the IRS. In fact, the special IRS program developed to identify shelters for audit has been a failure. If people only knew how few returns were audited, more and more would accept the audit odds stacked so heavily in the taxpayers' favor, and play audit roulette.

What scares most people about the IRS is not the audit itself, just the prospect of one. Now, audits are not much fun. But if you ask those who've been through one or more, most will tell you it's not nearly as bad as the IRS would like you to think. Still, the IRS encourages those who've never been audited to be afraid of this unknown experience. That's part of its game plan.

Because it so carefully cultivates this feeling about audits, you'd think the IRS would like nothing better than to increase its audit coverage, keep a tax collector on every street corner. But, if the truth be known, audit coverage has dropped a bit each year for the past couple of years and will probably continue to drop in the future. It audits just over two percent of the individual returns filed, while noting it should audit six to eight percent for increased effectiveness. Yet the IRS has asked Congress for only enough money to beef up its audit staff by some 150--200 positions nationwide, while anticipating another drop in the number of returns it expects to audit this year. Where is it adding to its staff? In collections. It seems to be going after those it has already caught and who haven't yet paid all they owe. Those people serve as better examples of what the IRS can do to those it catches. The press reports on the IRS' power tend to keep people in a state of fear, more obedient to the IRS' way of thinking. As for new victims/taxpayers, the agency is continuing to rely on its present audit-selection systems.

You should take the offensive when it comes to your taxes. The IRS is not the all-knowing, all-powerful Big Brother it would like us to think.

There is absolutely no reason to fear the IRS. None at all. That is unless you've committed fraud or done something equally foolish. For the taxpayer who tries to do an honest job of reporting to IRS each year, for you and me, there's no reason to fear the IRS.

Outsmart Them Where They Live

This is the important first step. Before you start the return-preparation process, look over your taxes. Get an over-all feeling of where you stand. Check out all the items of income, your deductions, tax credits, exemptions. Think about any problem areas. Now go to the forms. Two sets. Fill the first out as if you had asked the IRS to do your return for you. Don't claim one thing you can't prove down to the last dime. Fill out the return with the idea that if you're audited later, you'll be able to verify everything. That's called a no-change audit, which happens about 13 percent of the time.

Now shift gears. With the second set of forms, get aggressive--reasonably aggressive. Take those charitable contributions you made but for which you didn't get a receipt. Deduct those entertainment expenses, dinners, shows, etc.--the ones the IRS might question on an audit. Depreciate that building--claiming a short useful life due to its deteriorating condition, rather than following IRS tables. Don't give the IRS an inch.

Then, after both returns are completed, compare the results. What's your tax bill (or refund) when you do it the IRS way? Now look at the other return, the one you did with your own best interest in mind. What's the dollar difference between the two methods? That number is very, very important. Because, instead of fearing what the IRS can do to you in case it ever gets around to auditing you, you now have a number in mind. That's the worst that can happen. If you can live with that number, you've beaten the system, you've outsmarted the IRS where it counts. Sure, you'll voluntarily pay your fair share. But you'll stop paying more tax than the law requires.

Another way to approach your return. All the IRS has to work with is the return you send it each April. If you mail the first set of forms you filled out--the one done completely in its favor--there is every chance it will accept it as filed. After all, it accepts nearly 98 percent as is. You gain absolutely nothing and could be losing tax dollars.

If, instead, you send in the return filled out in your favor, you save yourself some tax money, virtually risk-free--the IRS still accepts most returns as filed. You should view an aggressive return simply as your first offer in a business negotiation. In a business situation, your first offer, as long as it's not entirely out of line, should get you as much as you think you can. Since aggressive returns are accepted more often than not, go ahead and try it. If the IRS audits you later, remember it was just your first offer. The worst thing that can happen in that case is that you may have to fork over some (though rarely all) of the tax dollars in dispute, plus maybe some interest and a penalty. But you know exactly how much, because you've reduced the unknown amount to a number.

You know exactly what risk you are (continued on page 232)Outgun the I.R.S.(continued from page 154) taking--in terms of dollars--when you send in that aggressive return. Still, as a practical matter, there are a few things you would probably like to know, such as the different audit levels for the different income groups, the average deductions and the current IRS hot spots for this tax-filing season.

Determine your Audit Risk

Each year, the IRS brass in Washington, D.C., decides how many returns filed in each area of the country will be audited. Because of the IRS' limited resources, it programs its computers to select those returns showing the highest possibility for change among the various income levels. That means each return filed is graded for its audit potential. Those with the highest grades are selected first. The computer, by the way, is responsible for 75 percent of the returns that are audited. The other 25 percent are picked in other ways, such as when an ex-spouse informs to the agency during a messy divorce, or a partnership dissolves with one member getting the shaft, or when someone is fired for incompetence.

If you make more than $50,000, your audit exposure is a bit less than 11 percent--on the average. Returns showing income between $15,000 and $50,000 have an audit risk of about three percent. From $10,000 to $15,000 is 2.25 percent. Frankly, I'll take those odds any day, knowing that even if I'm unlucky, I've already figured out the most I can lose. And I can live with that risk.

You may be able to use the odds to outsmart the IRS; but, at the same time, you must understand the way the operation is run. Here's one recent subtle change the IRS has made that affects this year's audit odds. Consider two taxpayers. The first is a teacher earning $25,000. The other is an advertising executive pulling down $125,000 in salary and commissions, who has also invested heavily in tax shelters generating $100,000 worth of paper losses. As a result, his adjusted gross income was only $25,000, the same as the teacher's.

For the past 25 years, both taxpayers would have been in the same income level for audit-selection purposes. Both would have adjusted gross incomes of $25,000 and an audit risk of about three percent.

No longer. The teacher's audit exposure is the same as ever, but the executive now stands a one-in-ten audit risk. The reason is that the IRS now scans each return for its total positive income and ignores all the tax-shelter losses for audit-classification purposes. It may be a subtle change, but it's an important one, in letting you know your audit odds.

There was another technique tax pros used for years to cut audit exposure. "Go out and do some consulting." That's what the experts used to advise their high-income clients. "The extra income will actually cut your chances of being audited."

A taxpayer earning $100,000 a year in wages could expect an audit one in ten times. On the other hand, another taxpayer earning $95,000 in salary and another $5000 in consulting or some other side-line endeavors stood only a four percent audit exposure. Why? Because the part-time consultant attached a Schedule C to his return reporting the outside income. And that schedule got his return classified as a business return rather than as a personal, individual one. As a business, he was considered small potatoes--a low-audit potential.

That's all changed. The IRS now classifies returns as business or personal based on the primary source of income.

Compare Your Return With The Averages

Once the IRS--and you--determines your income level and whether your return is business or personal, go to the next step. Compare your deductions with those of others in the same income level. To get a handle on your return's audit potential, you must know what the averages are. Every year, the IRS publishes its statistics, which include estimates of the average exemptions, deductions and credits taken by taxpayers in the various income groups. And then it immediately says you can't rely on them, that you can take only what you're legitimately entitled to. Keep in mind that it's completely alien to the IRS way of thinking that you even need to know what the averages are.

I can tell you emphatically that those averages are very important. You need to know if you stand out from the crowd. (This is one instance when a high profile--individuality--is probably not a good idea.) It's also important that you find out if you've been missing some things that others have been taking.

On this page is a chart listing the averages for returns filed during 1979 for tax year 1978. Although these averages are a bit out of date, take a hard look at them. You can adjust them to take into account higher interest and real-estate-tax rates, but don't make the mistake of increasing the averages by 20 percent across the board to take into account the inflation rate. Traditionally, the averages increase only $10--$20 each year.

You should use these averages as a guide to assess your audit risk. If you find that you're solid on most of the items listed on your return, you might comfortably be aggressive on some of the others. On the other hand, you may want to tone down one or two areas if you find that you're way off base in five or six other places.

So much for your average personal itemized deductions. What about business-related expenses people are afraid to take because they're sure they'll be audited if they try to deduct them? There are three important points to keep in mind. First, you are being reasonably aggressive with your tax strategy. You have a basis for claiming your deductions, so go ahead and fill out your return. Second, remember how each item will appear on your return. Some schedules and forms are more prone to IRS questions than others. Third, get rid of your paranoia about the IRS and taxes. One or two business-related items aren't going to get you dragged into an IRS office, as long as the rest of your return is relatively clean. Here are a dozen of the more common business-type of deductions you can claim on your return and what you should know about them.

1. Office in your home. An IRS sore spot if ever there were one. This is actually a series of deductions that I'd just as soon urge some people to forget. It can be a problem for taxpayers and the IRS, and it may open up your return in later years when you sell your home. A deduction today could wind up costing you large amounts of tax later on.

2. Travel and entertainment. Commonly referred to as T&E among tax people. You travel. You probably entertain business clients as well. All T&E expenses should be tax-deductible. The key is in keeping accurate records. If you can prove what you spend on business-related travel and entertainment, then take your deductions. The IRS may not like it, but don't let that stop you. However, keep in mind that the burden is on you to prove the business tie-in on all your T&E.

3. Consulting and free-lance business. You may run it out of your house. Great. Everyone (except the IRS) likes initiative. The IRS would like everyone to be a wage earner subject to withholding. The trick here is to post a profit. The IRS is suspicious of losses. For example, if you report a $5000 consulting income and $4800 in expenses, the IRS computer probably won't trip you up.

4. Conventions. If they're associated with your business, great little vacation, they are yours, the courtesy of IRS. A major part of your expenses is tax-deductible, as long as you satisfy the IRS rules. It may not like your convention costs but will allow them grudgingly.

5. First-class air fare. There's not a thing wrong with going first class nor with a hotel suite rather than a small room, banquets instead of dinner in your room. The key is that your costs must be ordinary and necessary in your line of work to qualify for the deduction. There is no tax reason to avoid first-class treatment and first-class costs. The IRS may not like it, but that's tough.

6. Entertaining at home. Records are the key. You're allowed to take home business guests and deduct the cost of their meals, drinks, presents, etc.; but you're going to need receipts. And you're going to have to show the business connection.

7. Investment losses. Let's face it. The IRS likes gains and frowns on losses. If you have an investment that's gone sour, sell out. Basically, if the sale is neat, you probably don't have much to worry about. Your proof is easy to come by, and the IRS knows it. If the losses involve interfamily dealings, or your own company, the IRS may be suspicious.

8. Educational expenses. If your deductions are minor relative to the rest of your return, you shouldn't have any problem with the IRS.

9. Christmas gifts. If they're for a business associate, they're deductible with little problem, as long as you keep the price below $25. More expensive gifts are OK, but your deductions can't be more than that amount. Gifts of a personal nature don't qualify for deduction. Any gift you receive from someone else is tax-free to you.

10. Club dues and fees paid for business entertainment. They have always been on the IRS' list of questionable items. If you use the club for business more than half the time, that portion is tax-deductible. Go for it, though you should know that you may be asked to prove your business use.

11. Business driving. The IRS wants you to use its 1980, 20-cents-per-mile standard deduction for business driving. There are very few cases in which it isn't to your advantage to take the time to figure out your larger itemized deductions for driving. After all, it costs 30 to 40 cents per mile to keep a car on the road today. Still, this isn't a real IRS hot spot. Take business-driving expenses and feel comfortable about it.

12. Unreimbursed employee business costs. As long as those expenses don't add up to a substantial portion of your income, go right ahead and claim your unreimbursed business expenses. Go for whatever you can get. This is not a high-priority item with the IRS and it never has been.

Here's another way to compare yourself with others in your income group. Add up all your itemized deductions. Then divide that into your adjusted gross income. If you make $16,000--$20,000, your deductions should be about 25 percent of your adjusted gross income. In the $20,000--$25,000 bracket, it's 23 percent. $25,000--$30,000--21 percent; $30,000--$50,000--20 percent; $50,000--$100,000--19 percent. Don't let a couple of points either way bother you.

Another bench mark is to see how your tax bill compares with others after all the deductions, exemptions and credits are taken into account. Take your tax liability and divide it into your adjusted gross income. If you make $16,000--$20,000, it's about average to pay 12 percent in Federal income tax; $20,000--$25,000--13.5 percent; $25,000--$30,000--15 percent; $30,000--$50,000--16.7 percent; $50,000--$100,000--23 percent.

By the way, playing the normal or average game--staying within the limits--works only part of the time. With the computer rating your income and deduction items for audit potential, your over-all itemized deductions may be well within the normal range, though a single deduction may be excessive. That one may, in itself, be enough to trigger the computer. But don't let that stop you. Go for everything you're entitled to.

No one is perfect. Every year, we make the same kinds of errors we made the year before, the same dumb mistakes. And, believe me, the IRS is on the lookout for them. For 1979, those filing the so-called short form, 1040A, made mistakes in arithmetic 5.5 percent of the time. The error rate for the long form, 1040, was 7.3 percent. How does the IRS catch the errors? Each and every return filed is checked for math. If there's a mistake, the IRS simply adjusts it and sends a letter explaining what happened. No audit, just an explanation.

Probably the most common error besides math is underpayment of estimated tax. Again, the IRS computer is geared to check on anyone who owes the Government money at the end of the year. If you owe, the IRS will almost automatically assess a stiff, nondeductible, 12 percent underpayment penalty unless you can explain why it shouldn't. (Too bad you can't get the IRS to pay interest on amounts you overpay all year in excess withholding.)

Here are some of the other things that the IRS automatically checks before it even thinks about asking the computer to rate your return for audit. It checks to make sure you use the right tax table. If, for example, you indicate on the front of your return that you're single, you can't use the Married, Filing Jointly tax table. If you don't claim any dependents, you don't qualify for Head of Household rates.

It also checks to make sure you don't claim a partial dependency exemption. That's where you furnish 25 percent of your aging mother's support, so you try to claim 25 percent of her $1000 personal exemption. It's all or nothing. If you claim a medical-dental-expense deduction, don't forget the three percent limitation. If you do, you can count on the IRS computer to catch the error.

End The Overwithholding Habit

One sure way to outsmart the IRS is to cut your withholding and estimated-tax payments to the lowest legal limit. There's no reason for over-withholding, despite the fact that the IRS encourages it. It likes the fact that three out of four taxpayers have to ask it to refund their money, a refund averaging $600-plus per return.

Consider four reasons why no one should be overwithheld:

• You're relying on the U. S. Postal Service to deliver your refund check. That's some risk in itself. If it's lost in the mail, your money could be held up for months or even years.

• You're encouraging the IRS to keep up its scare campaign. How many times have you heard people say, "I'd rather get a refund than owe the IRS some money at the end of the year. You know, they can do terrible things to you if you owe them some tax. A refund is the safe way"? Nonsense! The best way is to break even or to owe a small amount.

• You're giving the IRS free use of your money. I've heard the heart of the arguments before: "I use my refund check to take my summer vacation, or as an enforced form of savings account." My point is that I don't think taxpayers can any longer afford to give up the use of their money by having the IRS withhold more tax than is necessary. On the average, the IRS is getting $50 a month more than it deserves for each taxpayer who is overwithheld. If you simply put your money into one of those high-interest-yielding money-market funds, you'll earn at least $30 extra interest a year. But, what's more important, you'll be able to use that $50 as you please.

The IRS spends about $60,000,000 a year on research--two and a half percent of its budget--to get inside our heads. And it has resorted to psychological studies to find out why some taxpayers voluntarily comply with its rules and some are more reluctant. It wasn't long ago that the IRS commissioned "a two-year contract study with a private behavioral-research firm on methods for determining the range and relative importance of factors affecting taxpayer compliance with the tax laws." In other words, to find out why some taxpayers are afraid of the IRS and some aren't.

That was only one of at least 115 research studies being conducted at that time. An underground-economy staff was created deep inside the IRS to perform basic research using what it terms "secondary information sources to identify concentrations of unreported income," which sounds like informants and infiltrators. There is another study to determine how many taxpayers want to "defer adverse tax consequences" and why. I bet they'll find a lot of people who don't enjoy overpaying their taxes and would rather defer their tax bills as long as possible. A major research project has even been completed on the compliance characteristics of independent contractors, those highly productive people who work for themselves. As a result, the IRS has identified independent contractors as a hotbed of low voluntary compliance.

The IRS has identified a very important trait. It knows that a taxpayer due a refund is much less aggressive in the preparation of his or her tax return than a taxpayer who has to write a check to the Internal Revenue Service on April 15. If you owe, more than likely, you'll dig for everything you can reasonably expect to get. If you're due a refund, you'll probably let some reasonable deductions slide because they might trigger an audit, and the IRS has conditioned you to avoid that at all costs.

If, after completing your tax return, you find you're due a refund, take the following two steps. First, don't ever let the IRS apply your refund to next year's tax bill. Get your refund now. You may want to set aside something to cover what you feel the IRS may contest later on, but take your refund.

Then adjust your withholding exemptions and estimated-tax payments to put an end to your overwithholding habit. Read the instructions on the W-4 form available from your employer. You may be able to claim an exemption for each member of your family, plus additional exemptions for some of your itemized deductions. One word of caution: Don't claim more than nine withholding exemptions on the form--even if you're entitled to more. If you do, the IRS may try to label you a tax protester, and that's something you don't want.

Make Your Tax Pro Work For You

There's no question that one of the best ways to deal with the IRS is to hire a smart tax professional. You need someone on your side who can show you the best way to take advantage of the tax loopholes, while at the same time help you avoid the traps and pitfalls. If you try to face the IRS alone, you'll probably be outmatched. Remember, they're the professionals. They think about taxes--your taxes--all year long. You probably have neither the time nor the inclination to learn everything you should know about taxation. So, to even up the odds, get a tax consultant.

It should come as no surprise that the IRS has moved to cripple the effectiveness of your tax advisor. To a great extent, it has succeeded. Does every meeting with your advisor seem to get tougher? Does he get more cautious? Won't let you take anything you can't fully nail down? Decides more and more of the gray areas against you and in favor of the IRS? Does he seem to be fighting for the IRS and against you at every turn? And, all the while, charging you for his services? If that's how your man behaves, there's good reason.

The IRS has set up a problem-preparers program to exert tremendous pressure on tax advisors to prepare your return the "IRS" way. If it decides a preparer doesn't handle returns to its satisfaction--if it considers him one of the bad guys or just plain sloppy, it can and does retaliate. It can fine him. It can audit all his clients. It can make life miserable for him. It can effectively put him out of business. So what does the independent preparer do to defend himself? Human nature tells him to do it the easy, safe IRS way. And, as a result, your taxes suffer.

Find a tax professional who'll represent you, rather than the IRS. After all, you are signing the check. It may not be too late for this filing season. If you're not satisfied with your present preparer, file for an automatic two-month extension to get your return in, and then get some forceful representation during the 60 days between April 15 and June 15.

Know The Hot Spots

You and your tax pro have to understand what's important to the IRS today. It isn't concerned so much with the nickel-and-dime stuff. It's playing for much bigger stakes. Right now, the IRS feels it must continue to keep people in line--compliant with the IRS' way of thinking about their taxes. So it will come as no surprise that the IRS is actively fighting the underground economy. The published reports say more and more people are reverting to cash businesses to side-step the IRS. Otherwise law-abiding citizens are setting up phony churches just to call themselves ministers and avoid taxes. People are "dropping out" altogether. If the taxpaying public feels the underground economy is growing (and it is), the entire tax system could be in serious trouble. If you don't think your neighbors are paying their share of the tax burden, how much longer are you going to pay yours?

Don't get yourself classified as a tax protester. The IRS will go after protesters for as little as $25. Right now, it has ten classifications for those people. Unless you enjoy fighting the IRS, keep a low profile. There are too many legitimate ways to cut your tax bill without resorting to the tax-protest movement.

The IRS is shifting more and more of its crack auditors to investigate what it calls abusive tax shelters--ones that the IRS determines don't make much economic sense except for the fact that the investment will cut your tax bill. And, of course, the IRS doesn't think an investment that cuts taxes makes good sense.

The IRS is at war with tax-shelter schemes (those generating big losses and deductions for their investors). Nevertheless, the IRS has encountered all sorts of trouble in discouraging people from sinking money into shelters that don't stand up to IRS scrutiny. (It's important to note that the IRS feels its responsibility is to protect the Treasury's interest in your tax dollars.) It is now going after the lawyers who write the opinions endorsing the tax benefits that come from each particular investment setup.

Which ones specifically are of the most interest to the IRS right now? Commodity-futures straddles are the highest on its no-no list. It doesn't think very much of some gem and art shelters that have unrealistic values placed on the assets when you purchase them and lower values when you sell a year later. It doesn't like the Bible shelters, flower shelters or some of the lithograph shelters. The IRS is always interested in offshore tax havens and foreign tax shelters, probably because there is so little it can do to stop them.

Another IRS pressure point is the vacation home. Once again, the IRS wants people to know it doesn't like to allow tax breaks on that mountain or beach property. As a matter of fact, all those with rental property can find themselves in a tax mess simply because the IRS is taking an unrealistic, hardheaded stand on income-producing rental properties.

Self-employed people and consultants have been high on the IRS' trouble list for the past few years and will continue to be there until there is some form of withholding on the payments they receive for their work. Until then, the IRS will continue its crackdown on independent workers because it feels their earnings go unreported.

There's a special emphasis on dividend and interest income reporting. The IRS wants withholding on all income, but it's not going to get it. So it's doing its best to match as much of the dividend and interest information as it possibly can against your return. The rule of thumb is: If the company reports to the IRS on computer tapes, you'd better put it on your return.

Unreported income from securities sales bothers the IRS. It doesn't receive any records when you buy and/or sell securities. True, it finds out about the dividends, but not the sales. It's checking on ways to come up with the information but, so far, hasn't had much success. Still, it remains a hot spot.

There's more. The IRS wants to know if people are reporting the interest they earn on those coupons clipped from Government securities. It's checking to see if people report interest when cashing U. S. Savings Bonds (does anyone still have them?). It will go after the big fish if it can, but it's not above nailing a little old lady, particularly if it inspires attention for the IRS cause.

Knowing what the IRS thinks about you, about your taxes and about the trouble spots is one step forward in dealing effectively with your tax plight. Eliminating the unknown and reducing it to nothing more than a simple number is another. And seeing how you compare with others, along with understanding what to look for in a tax pro, should mean the understaffed, underfinanced, totally outnumbered IRS doesn't stand a chance to take more of your tax dollars than it has the right to extract. Go ahead. Pay what you owe. Then outsmart it when it asks for one dollar more.

"You're the enemy. That's how the IRS views all taxpayers: liars, cheats, adversaries, foes."

"To get a handle on your return's audit potential, you must know what the averages are."

How to survive an audit with your assets intact

You've just received that letter from the IRS. It wants to see you and your records for an audit. Don't panic. If you aren't afraid of the IRS, if you've salted away the money necessary to cover a "worst case" audit and if you think about your finances all year long rather than just during tax season, then you will win. It will also help to have read the following advice from Paul Strassels and Robert Wool's Random House book, All You Need to Know About the I.R.S.: A Taxpayer's Guide, 1981 Edition.

1. Dress the way you normally do for business.

2. Be on time.

3. You don't have to accept the auditor assigned to you.

4. Don't take into the audit more than you are asked for.

5. Try to act naturally.

6. Attitude is nearly everything.

7. In general, let your tax professional do the talking.

8. Whenever you are asked a technical question or something you and your tax professional haven't considered, refer it to the tax professional.

9. Don't be flip with the auditor.

10. Never volunteer information.

11. Don't be chatty.

12. Don't let the auditor draw you out.

13. Don't rush the auditor or allow him to rush you.

14. Don't plead that everyone else does it.

15. Don't try the paper-dumping ploy.

16. Don't walk in without records.

17. Don't use the audit as a political forum.

18. Don't try for sympathy.

19. Don't allow the auditor to go on a fishing trip.

20. Don't try to take the auditor to lunch.

21. Don't arrive with a stereotype of the auditor in mind.

22. Don't try to bribe the auditor.

23. Don't underestimate the skills of the auditor.

Spend your time and energy devising a plan to get yourself through the audit experience as quickly and as inexpensively as possible. Resolve yourself to the audit, but don't think of yourself as having lost. Not at all. You've been winning the tax game all along.