The federal deficit is growing and the government is looking for ways to balance it.  There is one thing that’s been effective lately - IRS audits.  The IRS audit teams have been successful at raising money and that means the number of audits is increasing.

The target for 2007 was real estate investors with losses.  They specifically targetted taxpayers with limited partnerships, who took real estate professional status and who owned multiple properties.  That’s still a red flag, but there are more now:

Sole Proprietorships

Capital gains/loss calculations (they’re going to want to see proof of basis when you sell)

Offshore accounts

JUST IN! One more.  Big mortgage interest payments.  You are allowed to take a mortgage interest deduction for $1 mill of purchase indebtedness.  Many people refinanced properties to take money out for other purchases, consolidate debts and other purposes.  The interest on that is not deductible!

Filing your return has never been more treacherous!  Watch out for the new red flags!