Any taxpayer will be glad to learn what will catch the attention of the IRS enough for them to subject you to an audit. For some time now, a large percentage of the tax returns are processed by IRS computers. These systems simply identify those that are not within the statistical average, or what is considered normal when the group is examined as a whole, and then flags them. This flag raises the chances that such particular tax record will be audited. After the computer flags the tax record, it will be manually rechecked by an IRS employee, depending on the extent of the discrepancy that the IRS computer found. In some occasions, the IRS computer simply prints out a notice that will then be automatically delivered to the concerned taxpayer.
Audit flags do not mean you are certainly up for an audit. It only means that your chances of getting one are significantly increased. Note though that there are flags that you can easily avoid. Among these is submitting haphazardly filled out and incomplete forms. To avoid this, you may want to ensure that math computations are done perfectly and information given are authentic and correct. Otherwise, the computers will get confused with the items in your tax return and the intervention of an actual IRS agent will be required in this situation. Tax returns that are filed electronically are less likely to have this kind of problem as these mistakes are easily identified and corrected by the automatic math checkers imbedded in the electronic system.
Not declaring all of your earnings to the IRS will do you no good. Note that duplicates of all your W-2's or 1099's are also sent to the IRS. Hence, the IRS knows how much you have really earned for the year and if you fail to report any of those, they will surely put you through an audit. Miscellaneous income, dividends, and interests should always be declared as part of your earnings so you won't have problems with the IRS.
If you claim that you are making a great deal less than your industry norm, that will also raise an audit flag. In the opposite fashion, if you claim that you're making a great deal more than the industry norm, expect to be flagged and potentially audited. In fact, less than 5% of all taxpayers are audited each year. In the same manner, those who have an annual income of more than $100,000 are 5 times more likely to undergo an audit.
You will also be given an audit flag if your tax record demonstrates extreme fluctuations in your income level in a particular year. The IRS will certainly be alerted with large differences in income levels as it implies that at some point within the year, you've under-reported your income.
Even tax returns that have too many zeros is more likely to raise audit flags. The IRS believes that most transactions don't have exact amounts like $1000 or $500. Seeing this type of figure will cause the IRS to think that you've been rounding them up and that these amounts are highly unlikely. This will then prompt the agency to have an agent re-evaluate your tax return.
There are still many audit flags out there and the ones discussed above are just the most common ones. Knowing what to be careful about will certainly help you in avoiding an IRS problem.
Darrin T. Mish (http://www.getirshelp.com) is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He teaches attorneys, CPAs and Enrolled Agents in the finer aspects of IRS representation all around the United States. He can be reached at his website at http://www.getIRShelp.com
