The IRS audits people for many different reasons but generally speaking when the IRS audits an individual or business it’s expecting to yield additional tax due to owing on a return.
Key Takeaways
- The IRS audits people for many different reasons but generally speaking when the IRS audits an individual or business it’s expecting to yield additional tax due to owing on a return.
- The IRS tends to measure the propensity for error that is likely to occur. If the IRS audits the return and the potential for unreported income that may be associated with the return, the short version is the IRS has limited resources.
- the return it means that they’re looking to get something back.
The IRS tends to measure the propensity for error that is likely to occur. If the IRS audits the return and the potential for unreported income that may be associated with the return, the short version is the IRS has limited resources. It is trying to maximize those resources to yield as much back to the government as possible and to keep taxpayers in compliance. People get audited for a variety of different reasons and everybody’s tax return as I like to say tells a story. A tax return is a treasure trove of information. It says who you are, it says where you live, it says how you earn a living and gives the IRS a variety of information about your income, your deductions and the way that you live your life. When that story doesn’t match up, the IRS tends to want to audit the return or when there’s additional questions that may yield a result that’s favorable to the IRS, they’ll probably want to audit the return. So for example, a number of the things that we consider traditional audit red flags such as round numbers or increased travel expenses or meals and entertainment deductions, those things are more likely than not to get picked up by the IRS in an audit. Now just taking travel deductions doesn’t necessarily subject your entity to an audit but there’s a correlation in place between the amount of income you earn, the amount of expenses that you claim and the net result and what the IRS does when it audits people is it looks at the relationships between the numbers under your return and selects those for audit. So generally speaking, there’s not much that you can do to reduce your audit risk because the formula for calculating who gets audited and who doesn’t is kept the state secret, but generally speaking, when the IRS chooses to audit
the return it means that they’re looking to get something back. So if your return is selected for audit, and particularly if your return is selected for a field audit which is when an individual auditor wants to come and visit you out at your home or in your business, then you have potentially something to worry about. The IRS doesn’t audit returns just because they’re looking to get something back, so keep that in mind. If you’re selected for audit you may not know the reason why you’re selected for audit, you may not know why your story is out of sync with the government but you it can rest assured as the IRS is not going to undergo an audit unless it has the expectation that you’re going to pay more in tax.
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