If your Tax Pro prefers to e-file your return it may be because it is quick and efficient, since there are no papers to copy, file or mail. The IRS, on the other hand, is sort of like the Godfather; if they are doing you “the favor” of making it faster for you to receive your refund, there is a reason for it, and that favor will sometimes be called in. The IRS calls in favors with audits.
The IRS loves it when you e-file, for several reasons — and none of those reasons benefits the taxpayer. The IRS supercomputers automatically compare all of your deductions to “national averages,” giving them justification to audit you if they find deductions on your tax return that are above the ‘norm.’
But paper returns, which are processed by hand, result in comparing only about 20% of your data to the “national averages,” because only some of your data is entered into a computer. Also consider this — It takes a lot fewer administrative personnel to process electronic returns, so as they get more people to file electronically, lots of clerical positions can be eliminated.
Guess what they do with those “extra” positions. You guessed it, they are transferred to the “Enforcement Division” — yes, these are the people who conduct audits. So if you file electronically, you may be increasing your own chances of being audited, and you may be helping the IRS increase the size of its audit force.
But there is an even bigger drawback to e-filing — you are not allowed to attach supporting documentation such as Disclosure Statements or Affidavits. And those are the enclosures that can help you the most to stay off the audit list.