most audits are the result of returns being pulled at random. even if you are audited some agents might not question the transaction. if an agent were to deny the deduction there would be the taxes, penalties, and interest and the possibility of the audit of additional years.
here is an excerpt from IRC section 7201
Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.
the above relates to tax evasion. would the IRS try to assert it? can't say.
other penalties that could be asserted in lieu of 7201:
failure to pay tax under 6651(a)(2) 1/2% per month max 25% - this is the most common penalty I've seen asserted when the IRS changes a return increasing the tax liability
accuracy-related penalty under 6662 - 20% of the underpayment of tax
fraud under 6663 75% of underpayment
willful making and subscribing to false return under 7206
in the case of the H&R return, there would be difficulty in finding willfulness because you used a firm that specializes in tax return prep and therefore ought to know the "rules". TT is a self-prepared return. if others disagree with me this might make it a common practice.
