Paper Vs Efile Audit risk

[manceandpeters]

I have a client that has some complicated issues and I was going to recommend paper filing to reduce audit exposure. Bogged down covid system... But I am not sure if that is the correct way to go. Does anyone have any experience with this?

[ATSMAN]

What is the complicated issue that is requiring paper filing? Did you try to e-file and your tax prep software did not process for e-filing?

There is an old wives story floating out there that paper filing reduces those computer selected random audits. But that is not founded in reality.

[TaxGuyBill]

The people who enter original tax returns are just data-entry clerks. They don't really 'look' at the tax return to see if it makes sense, so paper filing does NOT reduce audit-risk. They just manually type in what you would otherwise have e-filed.

Hypothetically, paper-filing slightly increases audit risk. If the data-entry clerk enters something wrong, that could trigger a 'red flag'. And in some cases, there is less information on a paper return versus an e-filed return that could trigger an audit from the paper return. For example, "other income" (what used to be on Line 21). If there are multiple entries on that line, a paper filed return only shows the final result which could trigger the IRS computer to see a problem (does not match a 1099). An e-filed return submits each entry separately.

[Lion]

I definitely want to e-file my complex returns. I don't want any data entry clerk typing them into the IRS computer and making typos after I and my client and my software have proofread them. I want the return we proofed to be e-filed, go into the IRS computer without any human intervention. If a client gets a letter on a return I prepared, I know what's on it. Especially now, when a paper return probably will not be processed before you're filing next year, and even more especially if the return has depreciation or carry forwards.

[Rapid Robert]

I was going to recommend paper filing to reduce audit exposure.

If I were the client and got this from my preparer, I might start wondering whether I should worry about my return being prepared completely and correctly.

You can't control the actions of the IRS and it would be foolhardy to even hint to your client that you can. What you can do is offer some kind of audit service or protection plan, similar to what H&R Block offers (reimbursement for penalties due to preparer error, plus optional full audit support). If the client has a complicated tax situation and they are taking aggressive positions on the return, then they should be willing to pay for extra "insurance".

Oh, and I can't imagine any circumstance where I would paper file an original return that could instead be efiled, especially ever since PDF attachments were allowed.