The Internal Revenue Service (IRS) has all sorts of tricks up its sleeve when it comes to auditing taxpayers. The feds will use technology to help narrow the field of potential taxpayers, searching for those who will ultimately become targets of an audit.
How does this tech work?
This tech generally compares tax filings to other tax filings from taxpayers with similar income. If the filing sets off a red flag, the chance of an audit increases.
What are the red flags that can trigger an audit?
Some of the more common include:
- A discrepancy with reported income. If you made money, the IRS probably knows about it. This is because a copy of any tax form you received, whether a 1040 or a 1099, was also sent to the IRS. The IRS is likely to give a closer look to any filings that do not include this information.
- Disproportionate credits or deductions. This is where the note above about comparing your returns to others with similar income comes into play. The feds are more likely to take a closer look at your returns if you took out more deductions or credits compared to this peer group.
- Even numbers. It is pretty uncommon for the final numbers in tax returns to be nice round numbers. Those who claim easy numbers will get a closer look because, as noted in a recent report, the IRS is likely to believe the taxpayer was “just winging it” when they claimed those numbers.
Ideally, you will have records and receipts so you can defend any push back from the IRS. This will be very important in the event of an audit.
Is there anything else I should know about an IRS audit?
Generally, the feds have three years from the date of the tax filing to move forward with an audit — but there are some exceptions. If they believe there was criminal wrongdoing in the form of tax fraud, they can extend this time limitations almost indefinitely.
As a result, it is important to take any correspondence from the IRS about a potential audit seriously. The attorneys at Goldburd McCone are experienced in navigating these issues and can advocate for your interests. This can mean an ongoing conversation about the impact of an audit as well as fierce advocacy to defend your rights in the event of allegations of wrongdoing.