Tax Audit Intro:

Reasons for Getting Audited

Statistically speaking, the odds of being chosen for an audit are low. The IRS does not have the resources and manpower necessary to examine all the returns that they receive, so it selects those that they believe have a high audit potential, or in other words, those that are most likely to result in large tax deficiencies that will reap the IRS a lot in monetary benefits. There are several key factors at play in determining your potential audit odds. These factors include income, the type of return, your profession, the types of transactions involved, deductions you've claimed and where you live. The following circumstances have been known to increase your chances of being audited:

  • The information you reported does not match information the IRS has received on Form 1099s and W-2s from employers, banks, etc.
  • You claimed tax-shelter losses on your return.
  • You report complicated transactions related to business or investments without providing clear explanations.
  • Business expenses seem large compared to your income.
  • Cash contributions to charitable organizations seem large in comparison to your income.
  • Prior audits have been conducted on your returns and the results yielded sizable tax deficiencies.
  • An informer has provided the IRS with information causing them to believe that you have not reported all of your income on your return.
  • You are a shareholder in a company whose return has been examined.
  • You are the recipient of certain cash payments in your line of work (such as tips for waitresses and cab drivers) that can easily be concealed from the IRS.
  • Your itemized deductions exceed the IRS target ranges.