New IRS audit program.

* Seeking to improve its methods for targeting taxpayers for audits, the IRS will launch a sampling project starting in the fall of 2002 that will select nearly 50,000 individual returns (of the over 130 million returns filed); about 2,000 of them will be line-check audits. The purpose is to measure taxpayer compliance in tax filing, reporting and making payments.

In 1988 the IRS audited 54,000 returns on a line-by-line basis under its taxpayer compliance management program. Tax advisers were not permitted to represent taxpayers audited under the program. Many taxpayers and practitioners criticized the process as draconian.

The new project, the national research program, will use a semirandom check that crosses income and demographic lines. The program will collect a current snapshot of the taxpaying public, allowing the IRS to refine its statistical techniques, as well as better target audits.

For the 2,000 returns slated for line-check audits, the IRS will check each line of the return. The service will select another 30,000 returns for partial audits on a limited (and less-intrusive) basis. It will target about 9,000 returns for "correspondence" audits, asking for selected items or information by mail, with no personal appearance required. The final 8,000 returns selected will be examined simply to see that information in documents (such as forms W-2 and 1099) matches and will require no taxpayer contact.

The IRS expects the new program to be less intrusive and burdensome on taxpayers than its previous compliance studies.