ORANGE COUNTY TAX TIME : TRUTH OR CONSEQUENCES

Fewer than 2 of every 100 taxpayers can expect to be audited, according to an Internal Revenue Service official--little comfort for the thousands of taxpayers who receive that ominous notice instead of the expected refund check. For the chosen few, or just the morbidly curious, the following information may be of interest:

The IRS requests two types of audits--random and selective. The random audit was established primarily to provide data used to compile statistical norms--not to prey upon law-abiding taxpayers. The IRS’s Taxpayer Compliance Measurement Program, its tool for identifying suspicious returns, is compiled largely from information gathered this way.

The more widely known selective audit specifically targets those individuals and corporations whose returns deviate from pre-established guidelines. Enormous casualty losses or charity contributions disproportionate to income are a few of the commonly flagged areas.

This year, the IRS expects to see a record-breaking 1 million Orange County individuals file returns, fewer than 20,000 of whom have a statistical probability of being audited. And of that number, an estimated 10% will have no new taxes or penalties assessed as a result of the audit.

PENALTY BOX Taxpayers who owe the government money are classified as being either negligent or fraudulent in their tax return preparation: NEGLIGENT: Largely through ignorance and/or an unwillingness to attempt to understand the rules and regulations, these taxpayers do not pay their full share. Taxpayers who are deemed negligent must pay the remaining tax owed, plus an additional 5% penalty on the total tax owed and 50% of the interest on the tax owed. FRAUDULENT: Through intentional misrepresentation and/or withholding of tax information, some people attempt to evade payment of some or all taxes owed. These individuals must pay the remaining tax owed and are penalized an additional 75% of the portion of the underpayment attributable to fraud. They must also pay 50% of the interest on this amount. Above are the taxing highlights from Orange County for the last four IRS fiscal years (which run from Oct. 1-Sept. 30).

Estimated % Year/ Estimated Total Returns Estimated Type of Return Total Audits Audited Revenue Returns 1984-1985 Individuals 790,302 13,337 1.7 $3,583,706,750 Corporations 22,651 319 1.4 445,028,500 Total* 1,401,590 14,400 1.0 4,123,986,750 1985-1986 Individuals 829,925 12,450 1.5 4,000,971,750 Corporations 26,372 334 1.3 517,955,750 Total* 1,534,705 13,604 0.9 4,622,906,000 1986-1987 Individuals 858,743 11,651 1.4 4,738,959,000 Corporations 28,365 230 0.8 526,366,750 Total* 1,608,155 13,700 0.9 5,372,546,250 1987-1988 Individuals 898,822 11,236 1.3 5,149,069,000 Corporations 28,647 305 1.1 505,438,250 Total* 1,638,189 12,083 0.7 5,766,736,000

Estimated Year/ Additional Tax Type of Return and Penalties 1984-1985 Individuals $67,183,000 Corporations 81,457,500 Total* 165,445,000 1985-1986 Individuals 80,121,500 Corporations 36,037,500 Total* 125,879,250 1986-1987 Individuals 57,536,750 Corporations 128,056,500 Total* 194,987,500 1987-1988 Individuals 53,878,750 Corporations 153,804,250 Total* 219,398,750

* Includes individuals, corporations and other entities subject to taxation. Source: Internal Revenue Service, Laguna Niguel