Taxing News

Tax season is here. Now comes
the worry that you may be audited. The thought of digging out old
receipts and documents may have you howling, but check your resentment at the door—or it may cost you.

According to Loyola University psychologist Loretta Stalans, Ph.D.,
taxpayers' beliefs about audits have a nasty habit of becoming
self-fulfilling prophecies: If you expect unfair treatment from an
auditor, you're more likely to get it.

It's not that auditors are mind readers. What happens, explains
Stalans, is that taxpayers who expect unfair treatment fail to establish
rapport with their auditors. And in an audit, a cordial relationship with
your auditor can save you a lot of hassle—and maybe some money.

The reason: Auditors are more likely to bend the rules if they
believe a taxpayer is trying his best to comply with tax laws. "The
auditor may accept an explanation that records were lost during a move,
or that your ex-wife destroyed them;' Stalans says. "That's going to
affect the bottom line."

A taxpayer who expects unfair treatment, on the other hand, is more
likely to act aloof or behave uncooperatively, leading the auditor to
assume that he or she is being intentionally noncompliant. In such cases,
Stalans found, auditors were five times more likely to assert their
authority by, say, rejecting an extension request or a taxpayer's
excuse.

Surprisingly, auditors are most willing to ignore a misplaced
receipt when the tax laws or departmental protocol provide a clearcut
solution to a dispute. But when the legal situation is murky, pragmatism
holds sway: Auditors consider whether enforcing a statute by the books is
worth the time, effort, and tax liability involved.

Stalans examined audits performed by the state of Oregon. But she
says the conclusions may extend not only to the IRS, but to dealing with
authorities like police. Studies have shown, for example, that cops tend
to cooperate with citizens who act respectfully, and to strictly enforce
the law when a potential suspect acts rudely.