The IRS doesn’t target specific individuals for audits, but rather selects returns based on various factors. Filing an accurate return is the best way to avoid an audit. The IRS may flag your return if income or details don’t match what employers or banks reported, if a business partner is audited, or if a court links you to a potentially abusive tax strategy. Computer scoring systems also identify returns with a high rate of unreported income.
Who Is Most Likely to Get Audited by the IRS?
While the IRS doesn’t release a list of "who to audit," certain factors increase your chances of being selected for an audit. It’s less about who you are and more about what your tax return says. The IRS uses sophisticated systems to identify returns that may have errors or unreported income.
What Triggers an IRS Audit?
Several things can trigger an IRS audit:
- Mismatching Information: If the income or other details on your return don’t match what employers, banks, or other third parties reported, the IRS may flag your return.
- Related Examinations: If your business partner or investor is being audited, your return might also be selected.
- Local Compliance: The IRS sometimes focuses on certain areas or industries. If your return falls within one of those, it may be selected.
- Computer Scoring: The IRS uses a scoring system to identify returns that have a high rate of unreported income. Some returns receiving a high score are selected for an audit.
- Court-Generated Reports: If a court links you to a potentially abusive tax strategy, such as those designed to hide income or evade taxes, your information may be sent to the IRS.
How Does the IRS Choose Tax Returns to Audit?
The IRS uses a computer scoring system to identify returns with a high probability of errors or unreported income. This system, along with other factors like information matching and related examinations, helps the IRS select returns for audit. There’s no foolproof way to avoid an audit, but filing an accurate return is the best defense.
What Happens During an IRS Audit?
If your return is selected for examination, the IRS will explain in its letter what to do next. The audit may be handled by mail, where you submit documentation by the due date. You can request an in-person audit if you have too many documents to send easily. In-person audits can take place at an IRS office, your business or home, or your attorney or accountant’s office.
What to Do If You Disagree with the Audit Results?
If the IRS proposes changes to your return and you disagree, don’t sign the form. You can send additional documentation or request a phone conversation with the examiner. If you still can’t reach an agreement, request a conference with a manager or appeal.
People Also Ask (PAA)
What Percentage of Tax Returns Are Audited?
The IRS audits a very small percentage of individual tax returns each year. The exact percentage varies, but it’s generally less than 1%. Higher-income taxpayers and those with more complex returns may face a slightly higher risk of audit.
How Far Back Can the IRS Audit?
The IRS generally can include returns filed within the last three years in an audit. If the IRS finds a substantial error, they may go back further, generally no more than the past six years. There is no time limit if you fail to file a return or file a fraudulent return.
What Rights Do I Have During an Audit?
Taxpayers have several rights during an audit, including the right to representation, the right to privacy, and the right to appeal. The IRS provides information on these rights in Publication 1, "Your Rights as a Taxpayer."
How Can I Prepare for an IRS Audit?
Gather all relevant documents, such as income statements, receipts, and bank records. Organize your documents and be prepared to explain any items on your return. Consider hiring a tax professional to represent you during the audit.
Can I Appeal an IRS Audit Decision?
Yes, if you disagree with the outcome of an audit, you can request a conference with an appeals officer. The letter you receive from the IRS will explain how to begin the process. What happens next may depend on whether you owe more or less than $25,000.
Understanding the factors that trigger an IRS audit can help you file accurate returns and minimize your risk. While there’s no guarantee against an audit, being diligent and honest in your tax filings is the best approach.
Would you like to explore common mistakes that trigger audits?