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What Triggers an IRS Audit?
Understanding Common IRS Audit Triggers
While most tax returns are processed without issue, any return can potentially be selected for an IRS audit. Preparing an accurate return and maintaining proper documentation are the best ways to reduce your chances of unnecessary IRS scrutiny.
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One of the most common audit triggers is claiming deductions that cannot be supported by proper documentation. Business owners and self-employed individuals should be especially careful to separate legitimate business expenses from personal expenses. Excessive or unsupported deductions often attract additional IRS attention.
Another common issue is underreporting income. The IRS receives copies of income documents from employers, banks, brokerage firms, and other third parties. When the income reported on a tax return does not match IRS records, additional tax, penalties, and interest may be assessed.
Common IRS Audit Red Flags
- Large unsupported deductions
- Personal expenses claimed as business deductions
- Underreported income
- Poor record keeping
- Missing income documents
- Inconsistent financial records
- Unsupported tax credits
- Mathematical or reporting errors
Small Businesses Can Be Audited Too
A common misconception is that only large corporations are audited. While larger companies often receive more comprehensive examinations, the IRS also audits small businesses, sole proprietors, and self-employed taxpayers on a regular basis. In addition, some tax returns are selected through IRS research programs even when there are no obvious warning signs.
Keep Complete Records
Every deduction, credit, and item of income reported on your return should be supported by accurate documentation. Maintaining organized financial records throughout the year can make responding to an IRS inquiry significantly easier while reducing the stress associated with an examination.
Potential Audit Consequences
Not every IRS audit results in additional taxes. Many examinations conclude with little or no change to the original tax return. However, when the IRS determines that adjustments are necessary, the taxpayer may be responsible for paying additional tax, along with applicable penalties and interest.
Minor reporting errors may result in relatively small adjustments. More significant issues, particularly those involving substantial underreporting of income or unsupported deductions, can lead to much larger assessments. In rare situations where the IRS believes there was intentional tax fraud, civil fraud penalties or even criminal investigations may be pursued.
Possible Results of an IRS Audit
- No changes to your return
- Additional tax assessment
- Interest on unpaid taxes
- Accuracy-related penalties
- Civil fraud penalties (rare)
- Collection activity if unpaid
Can an Audit Lead to Wage Garnishment?
Most IRS audits do not result in wage garnishment or other enforced collection activity. However, if additional taxes are assessed and the balance remains unpaid, the IRS collection process may begin. Taxpayers generally receive written notices explaining the amount due and providing opportunities to resolve the balance before more aggressive collection actions are considered.
If IRS collection notices are ignored, the agency may eventually pursue collection through federal tax liens, bank levies, or wage garnishments. Fortunately, many taxpayers can avoid these actions by responding promptly and establishing an acceptable payment arrangement with the IRS.
Best Practices for Avoiding IRS Problems
- Report all taxable income.
- Claim only legitimate deductions.
- Maintain organized financial records.
- Keep supporting documentation.
- Review your return for accuracy.
- Respond promptly to IRS notices.
- Address tax balances early.
- Consult a qualified tax professional.
Professional IRS Audit & Collection Assistance
Preparing an accurate tax return is the best way to reduce the likelihood of an IRS audit. If you are selected for an examination or receive IRS collection notices following an audit, experienced tax representation can help protect your rights, explain your options, and work toward the most favorable resolution available.
Whether you need assistance responding to an IRS audit, resolving additional tax assessments, negotiating payment arrangements, or stopping IRS collection activity such as bank levies or wage garnishments, professional guidance can often make the process significantly less stressful.
Need Help With an IRS Audit or Collections?
If you've received an IRS audit notice, owe additional taxes after an examination, or are facing collection actions such as liens, levies, or wage garnishments, contact our office today. We can help you understand your options and work toward the best possible resolution.
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