Many Americans think rushing through their taxes will get them a refund sooner. In most cases that may be true, but what really works best is doing your taxes right, according to experts.
If something doesn’t add up or match — whether intentionally or by accident — you run the risk of getting audited, they said.
When you’re audited, it means your return was selected from a batch of returns for a closer inspection. This happens because your tax filing was among those that showed the “highest potential noncompliance,” the IRS said. The agency uses data-driven algorithms, third-party information, whistleblowers and information you provide to determine if income, expenses and credits are reported accurately.
The easiest way to avoid an audit is to slow down, and be “accurate, honest and modest,” said Eric Scaringe, principal at certified public accounting firm UHY.
What triggers an IRS audit?
Mismatches. “One thing tax jurisdictions like more than money is information,” Scaringe said. “They look for mismatches, and use AI tools to find it and send auto-generated notices. That’s low hanging fruit.”
For instance, make sure you enter your information from your W-2 income tax form correctly so it’s consistent with the income that’s stated on official income tax documents like a 1099 or W-2, said Erin Collins, head of the Taxpayer Advocate Service, an independent organization within the IRS that works for taxpayers. Or else, you can expect an IRS inquiry.
“We find alot of taxpayers take their last pay stub (of the year) and use that number,” she said. But they can run into problems because that last pay stub may not cover their typical pay period.
She also recommends parents discuss who will be claiming a child on their return if they file separate returns. They should also ensure additional caretakers like grandparents don’t try to claim a child on their return if they don’t meet the IRS requirements for doing so. Otherwise, an audit may be triggered if multiple people try to claim the same child as a dependent.
People often get tripped up on the earned income tax credit because IRS records show that a child claimed by the taxpayer does not meet the relationship or residency test to be considered a qualifying child, according to the Taxpayer Advocate.
Michael Steffany, a senior tax attorney at Withersworldwide, said in his experience, “the IRS concentrates its efforts on those items most likely to result in a large amount of additional tax due.”
“We continue to see high net worth taxpayers, as well as taxpayers with non-U.S. income and foreign entities, be a particular point of concentration,” he said.
How does the IRS choose who to audit?
The IRS said audits can commonly be triggered through a random selection process in which a computerized system compares your return “against ‘norms’ for similar returns.”
For example, a freelancer earning $100,000 might typically have $5,000 in travel costs. “If you’re out there and wrote $50,000 in travel costs, that’s way outside the mean someone would deduct,” said Mark Jaeger, vice president of tax operations at preparer TaxAct. “The IRS would flag that because you’re an outlier.”
Claiming too many charitable donations can draw red flags. If you don’t have proper documentation to prove your contribution, don’t claim it.
Another trigger for an audit is if the information on your return is connected to someone else’s, such as a business partner or investor, who is being audited.
Who gets audited by the IRS the most?
In terms of income levels, the IRS in recent years has audited taxpayers with incomes below $25,000 and above $500,000 at higher-than-average rates, according to government data.
In May, the IRS said it’s working on increasing audits by more than 50% on wealthy individual taxpayers with total income above $10 million. It forecasts audit rates in this group to rise to 16.5% in tax year 2026 from 11% in 2019.
Over that same period, the agency said it won’t increase the “historically low levels” of audits for small businesses and taxpayers making under $400,000.
Odds of being audited by the IRS
For all returns filed for tax years 2013 through 2021, the IRS said in its 2023 Data Book it has audited 0.44% of individual returns filed.
In 2022, 3.8 out of every 1,000 returns, or 0.38%, were audited by the IRS, according to a report using IRS data from Syracuse University’s Transactional Records Access Clearinghouse. That was down from 4.1 out of every 1,000 returns filed, or 0.41%, the prior year.
Low-income wage earners taking the EITC were 5.5 times more likely to be audited than anyone else “because they are easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions,” the report said.
And a 2023 report from Stanford University found the IRS audited Black taxpayers 2.9 to 4.7 times the rate of non-Black taxpayers. The study reviewed nearly 800,000 audits and about 148 million tax returns.
It found Black taxpayers accounted for 21% of EITC claims, but were the focus of 43% of EITC audits. “Perhaps the most striking statistic is this: A single Black man with dependents who claims the EITC is nearly 20 times as likely to be audited as a non-Black jointly filing (married) taxpayer claiming the EITC,” according to the report.
When audited, you’ll initially be contacted by mail. The IRS will provide all contact information and instructions in the letter you’ll receive.
If the IRS conducts the audit by mail, it’ll ask you for more information about certain items on your tax return such as income, expenses and itemized deductions.
If you have too many books or records to mail, you can request a face-to-face audit and the agency will provide contact information and instructions in the letter you receive.
The in-person interview may be at an IRS office or at the taxpayer’s home, place of business, or an accountant’s office. IRS agents don’t usually show up at your doorstep anymore.
Typically, the IRS can include returns filed within the last three years in an audit. If it finds a “substantial error,” it can add additional years but it usually doesn’t go back more than the last six years.
If you receive an audit notice, you generally have 30 days to respond. Take that time to read the letter carefully to understand what the IRS is requesting. Not all notices are audits and not all are related to your latest tax return.
Once you understand, you can craft your response and provide the IRS with the information it’s requesting. If it’s a simple math error you agree with, you can often send money to cover what you owe or request a payment plan.
If it’s more complicated, you’ll have to write an explanation with documentation or find a tax pro to help you. You can also check Taxpayer Advocate Service for some guidance.
Whatever you do, don’t ignore the IRS.
Failure to comply could result in additional interest and penalty charges for late response and/or providing incomplete information or losing your right to challenge the finding if you don’t agree, according to the Taxpayer Advocate Service.
Contributing: Sun-Times
