Reasons for Audits

Many Americans are audited annually by the IRS. What alerts the IRS to conduct an audit? Are there specific causes why somebody is audited?

The information you filed on your tax return are compared by the IRS computers to the forms (W-2 and 1099) you originally submitted. If the figures don't match, you will be sent a notice for a correspondence audit.

The computer system also searches for alerts, like high car expenses, too high use of cars in your business, too high travel and entertainment deductions, low gross profit margin, and low or non-existent business profit.

Additional investigation can be considered based on:

• Big figures of itemized deductions
• Undeclared taxable income
• Cash or tips in business
• A record of prior audit and tax deficiency
• Claims of tax shelter investment losses
• Higher than normal business expenses for your business
• Big cash figures of charitable donations
• Partner or shareholder in a business
• Complex tax transactions without explanations

Taking all your tax deductions might lead to an audit. If you have not done anything illegal, there's no need to be worried.

Some means of selection for audit are the following:

• You've been reported to the IRS: Reports can be from an ex-spouse, business associates, former employees, or a law enforcement agency.
• You were once part of a crime with a huge amount of cash involved.
• You've been audited in the past: You'll have a higher chance of being audited again.
• You've amended a return and claimed a refund: If you've amended a return and claimed a refund on any tax return within 3 years of its due date, you have a fairly high risk of being audited.
• You're a member of a special target group of occupations that the IRS feels are in need of scrutiny.
• You are included in the 50,000 taxpayers picked to participate every three years in the IRS compliance measurement program.
• You are part of a market segment specialization program for specific workers.

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