Filing taxes can be a daunting task, especially with the looming possibility of an IRS audit. As the tax season ramps up, many individuals express concern over their claims potentially triggering scrutiny from the Internal Revenue Service (IRS). Recent funding boosts have allowed the agency to ramp up its audit activities, particularly targeting high earners. However, changes in leadership and political dynamics within Congress could complicate the agency’s long-term audit strategies.
Recent statements from the IRS suggest a focus on increasing audits among wealthier taxpayers, a move designed to ensure compliance within the highest income brackets. Mark Baran, managing director at CBIZ’s national tax office, points out that while this focus may be clear, the agency’s future priorities remain uncertain because of changing political landscapes. With a Republican-controlled Congress and White House, it is unclear how aggressively the IRS will pursue audits.
Experts suggest that some taxpayers may unwittingly enhance their chances of being audited by making certain common errors on their tax returns. These include rounding numbers and estimating expenses. Baran underscores the idea that taking shortcuts might lead filers into a risky “audit lottery”—a gamble that could yield unpleasant consequences.
Tax experts identify specific actions that can raise red flags for the IRS. One prevalent issue involves missing income that should have been reported. The IRS utilizes a system that cross-examines tax returns with “information returns” such as W-2s and 1099 forms, which are submitted by employers and financial institutions. If discrepancies arise, your return could be flagged for an audit—a scenario Elizabeth Young of the American Institute of Certified Public Accountants (AICPA) emphasizes.
Furthermore, taxpayers claiming unusually high tax breaks relative to their income may find themselves under investigation by the IRS. The agency employs advanced algorithms that analyze deductive claims across similar income brackets. Claims that stand out—such as charitable donations constituting 30% to 50% of your adjusted gross income—are likely to attract additional review, according to Baran’s analysis.
Another common audit target is the Earned Income Tax Credit (EITC), which offers refunds to low- to moderate-income workers. Such credits are often subject to scrutiny because of their complexity, as noted by Robert Nassau, a law professor at Syracuse University. He highlights that taxpayers seeking EITC may inadvertently misapply the rules, particularly given how eligibility can vary based on factors like earnings and family size. EITC claimants experience a staggering 5.5 times higher audit rate compared to other filers, largely due to improper claims.
Despite the fear surrounding audits, it’s important to note that the frequency of audits remains relatively low. The IRS’s data indicates that only 0.44% of individual tax returns were examined during the fiscal year 2023 for tax years 2013 through 2021. Most audits are resolved through what the IRS calls “correspondence audits,” which occur via mail. In fact, over 77% of audits in 2023 were conducted through this method, further indicating that face-to-face audits remain a rarity.
When faced with an audit, taxpayers who keep comprehensive records typically have less to worry about. Baran advises that maintaining solid documentation, such as receipts and corroborating records, serves as a vital defense. Being prepared with substantiation reassures the IRS about the legitimacy of claims and often leads the agency to focus its resources elsewhere.
While the prospect of an audit can be intimidating, awareness of common pitfalls can help taxpayers navigate the filing process more confidently. Understanding the triggers that spark IRS scrutiny, particularly in light of heightened audit activity for the wealthy and specific credits like the EITC, is essential. By preparing comprehensive records and avoiding common mistakes, you can file your taxes with a greater sense of security and lower your chances of attracting unwanted attention from the IRS.