1040 Review Helps Reduce Audit Risk

(This article appeared as a sidebar to the review section and, as such, did
not receive star ratings.)

From the April 2009 Review
of Professional Tax Compliance Systems & Tax Specialty Products

Although most of the tax programs on the market now provide their own built-in
analysis tools, the true science of 1040 return diagnostics was mastered by
H.C. Sharp Software, which offers the 1040 Review system. The program does exactly
what its name implies, providing a reliable third-party diagnostic check of
a return. It supports Form 1040 and Schedules A, C, D and E.

The key focus of 1040 Review is that it identifies potential IRS flags that
can result in audits. It performs this task by analyzing client return data,
benchmarking key information such as gross income, AGI, deductions and business
industry code, and then comparing that data against other similar returns. In
short, it looks at the same things that the IRS’ computers do, looking
for outliers that may prompt an audit. The system costs $249, making it easily
affordable to all practice sizes, but particularly well-suited to professionals
using less comprehensive compliance packages.

Data can be imported into 1040 Review from most tax systems or can be manually
entered in a few minutes, and offers easy scenario testing to identify less
risky treatments or potential tax saving options. The program produces a narrative,
client-ready Word formatted report that explains and shows graphically how a
client’s return data compares with similar taxpayers. It also highlights
potential areas for lessening their tax liability, such as with its IRA feature
that can determine the optimal deduction amounts for various IRA types or combinations.

The 1040 Review system also provides a customizable Due Diligence Checklist,
which many users claim is worth the price of the program by itself. This electronic
checklist lets firms reduce their reliance on paper or spreadsheet checklists,
giving them a more automated method of making sure that their internal review
processes are followed, and allowing them to design it as needed to meet their
firm and individual workflows.

The continued consolidation among tax compliance vendors has resulted in only
a handful of companies producing the tax software used by virtually all tax
pros. While these systems include analysis features, they generally identify
internal review errors or missing information. The value in 1040 Review is that
it looks at the factors that may cause an audit and also provides an outside
view on the validity of the data — a second opinion at a good price.