What Can Trigger a Tax Audit?

tax auditAn IRS audit is not welcome news for any taxpayer—but understanding how you got there might help.


While some tax audits are random, many are not. For starters, math errors are low-hanging fruit and are quickly flagged by an algorithm. Similarly, if your return reports less income than the accompanying W-2 form, expect to be called out. These can be simple errors—a taxpayer may use the information on an old paystub to calculate their income, and the paystub may not reflect actual annual income.


Other common errors include divorced spouses claiming the same child as a dependent, and simple omissions. These kinds of errors may lead to a notice letter from the IRS, instead of an audit. That said, other factors can tip the scales toward audit.


For years, the IRS has had an interest in high-net-worth individuals. The IRS is famously tough on those who forget or fail to file their annual FBAR, the report that details assets held in foreign bank accounts. As well, if an FBAR does not match the FATCA report submitted by foreign banking interests, the IRS will pick that up pretty quickly.


If you are someone who believes the IRS will never find out about money you earned offshore, under the table, on the internet, or in a smoky backroom gambling parlor, respect is required for the breadth and depth of the IRS Automated Underreporter program. The software has an incomparable list of resources to identify what money is coming your way that you might not be reporting.


In the everyday world, there are many subjects that the IRS considers ripe for tax fraud, including:

  • Fuel tax credits
  • Large cash purchases or losses
  • Charitable donations
  • Home office use and deductions
  • Unreported 1099 income
  • Corporate entertainment and meals
  • Vehicle expenses
  • Business profit and loss, rental income and losses
  • “Hobby” losses


Suspicion in any of these areas can yield an audit letter. If you are involved in a tax or income ploy, someone who knows you can anonymously report you as well. If the tip leads to an IRS criminal investigation that nets a payday for the IRS, the tipster may earn a portion of the penalty you are assessed. In short, there are many ways to end up involved in a tax audit, including random chance.


If you submit your return and realize that you have made a mistake, you can amend your return to correct the error. If you willingly submitted a false income tax return—there is a reasonably good chance you will eventually receive an audit letter from the IRS. When that happens? Speak with an experienced tax attorney before you respond to the IRS.


Chicago tax lawyers provide experienced representation when you face a civil audit or tax controversy

The tax group at Robert J. Fedor, Esq., LLC represents business and individual clients responding to tax controversy, offshore tax allegations, or litigation over foreign bank accounts. When experienced tax advice is needed locally or internationally, call 800-579-0997 or contact us for a free consultation.


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