E-Filing Doesn’t Make You More Susceptible to Audit or Monitoring
Q. My accountant says filing paper returns makes it less likely that I’ll be audited. Is that true? And does electronic filing make it easier for the IRS to monitor me?
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A. Your accountant is telling one of those little accounting half-truths. Filing electronically lessens the chance that your return will get kicked back for stupid mistakes--basic math errors, a missing signature, too many or too few digits in your Social Security number, sending the state form in the federal envelope and vice versa. The electronic system simply won’t accept returns with such errors, which reduces the number of letters the IRS has to send out demanding that you fix your blunders--or the blunders made by your accountant.
Those letters aren’t really “audits”; they’re more along the lines of “Get your act together, you moron” love notes. Real audits--the oh-no, sweaty-palms, dig-up-your-receipts-and-pray kind--are still triggered by the same old things: being in a cash business, making more than $100,000, owning a business that’s losing money, being self-employed or outsize deductions compared with your income.
As for being worried about the IRS “monitoring” you--sweetie, if it wants to, it will. Without too much effort, the IRS can find out just about everything it cares to know about you, from your checking account number to the car you drive to your drinking habits. (Remember those three-martini “business lunches” you expensed?)
Actually, your concerns about having your financial information stored in a big government computer are a bit passe. The IRS is already filing your return electronically.
Once the paper version hits the IRS processing centers, all the figures are keyed into a giant database. Having your accountant file electronically just cuts out the middleperson. That means cost savings for your government and a faster refund for you.
Variable Annuity Can Be a Trap
Q. I purchased a non-qualified variable annuity two years ago. Due to competition, the company is now offering a similar variable annuity with an expense charge about 0.5 percentage point less than the annuity I purchased. That difference would save me several thousands of dollars per year. I contacted the company about converting to the less costly annuity without incurring the surrender charges, which are currently 6% of the annuity purchase value. The company replied that such a change could not be made, due to IRS tax laws, and that they were reluctant to set a precedent for other owners of similar annuities. Are they correct? If not, do I have any options or legal recourse?
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A. They must be referring to IRS Code B.S. 101. There’s no such tax law, only the company’s reluctance to lose those thousands of dollars you don’t want to pay. That’s apparent from the nonsensical response they gave you: If such an exchange were really against the law, why would they worry about setting a precedent?
They’ve got you, you know. Unless you’re willing to give up a good chunk of your money to go elsewhere, they know they can continue to milk you for that half a point. That 6% surrender charge is your clue that this company is not particularly interested in letting you go until it’s had its way with you, if you know what I mean.
But you have performed a public service by being an object lesson. Readers, this is what can happen to you if you rush into buying a variable annuity without checking out all the fine print--and what the competition offers. Even if you get a great deal at the time, the deals can get better after you purchase. If your surrender charges are high, however, you have little negotiating leverage with your company, because they know you’re unlikely to leave.
