IRS Tax Controversy: Two “Red Flags” That May Trigger an Audit

The average taxpayer wants to have as little to do with the IRS as possible.

And the last thing that any taxpayer wants to receive in the mail is that dreaded notification that they have been selected for an IRS audit. In this blog entry, we’re going to discuss several ways to reduce your chances of being audited.

But first, let’s talk a bit about the process. It’s important to understand that there is no way you can guarantee that your return won’t be audited. This is because a percentage of the audits performed by the IRS are selected at random. But the majority of IRS audits aren’t completely random. For one thing, the higher your income, the higher the chances that you’ll be audited.

In addition, there are many ways to raise “red flags” with the IRS that increase your chances of being audited. A recent MailTribune.com article highlights several of these red flags. Below are two of them:

Large itemized deductions: The IRS has established ranges for the amount of itemized deductions based on a taxpayer’s income. Deductions that exceed the statistical “norm” for a given state and region may be red-flagged for a closer look. This does not mean that you shouldn’t take legitimate deductions. Your deductions could exceed the IRS range due to high medical expenses and large charitable contributions.

Business expenses: Big deductions for business meals, travel and entertainment are always ripe for audit. A large write-off will raise red flags if the amount seems too high for the business. Taxpayers claiming 100 percent business use of a vehicle is also a huge red flag. The IRS knows it’s extremely rare for an individual to use a vehicle strictly for business. The IRS looks for personal meals or claims that don’t satisfy the strict substantiation requirements.

If you’d like to learn more about the IRS audit selection process, please contact us today. If it’s too late to avoid an audit because you’re already in the midst of an IRS dispute… we can help! Our team will represent you against the IRS, and we’ll work tirelessly for the best possible resolution to your tax dispute. Get in touch with us today to learn more!