Some Common IRS Flags for Audits

It's necessary for any taxpayer to know what entries in the tax return will lead to potential problems with the IRS. For everyone's information, the IRS has computers that will process almost all tax returns and these will simply look for anything that is 'out of the ordinary' when compared to the statistical average. Anything beyond this average will be regarded as a red flag. All flagged entries will either be manually reviewed by an IRS agent or will be automatically dealt with by the computer --- that is, it will print out a notification that will be directly forwarded to the taxpayer.

The good news is if you get audit flags, you will not be automatically audited by the IRS. Your odds for an audit, however, are greatly magnified. Note though that there are flags that you could easily avoid. One of these is submitting sloppy and incomplete forms. Avoiding potential IRS problems would require you to do your math computations correctly and to provide information completely. Otherwise, the computers cannot figure out the entries in the tax return and an IRS employee will need to review this. Tax returns that are filed electronically are less likely to have this kind of problem as these errors are easily detected and corrected by the automatic math checkers imbedded in the electronic system.

Another audit flag pertains to the non-declaration of all your income. The general idea is, all of your earnings must be duly reported to the IRS, otherwise, you will definitely get an audit. Items that must be reported are miscellaneous income, dividends, interest, among others. Remember that the IRS gets a copy of all your W-2's or 1099's, thus, they know how much exactly you make in a year.

If you claim that you're earning a great deal less than your industry norm, that will also raise a flag in the eyes if the IRS. Conversely, if you claim that you're making a great deal more than the industry norm, expect to be flagged and potentially audited. In fact, a minimum of 5% of all taxpayers are audited yearly. In the same manner, those who have an annual income of more than $100,000 are 5 times more likely to be audited.

You'll also get audit flags if in a given year, your record shows extreme fluctuations in your income level. The IRS will notice if huge differences in income levels are declared as this would imply that you have under-reported your income at some point.

It may sound ridiculous but a tax return containing too many zeros is more likely to catch the attention of the IRS. The IRS believes that whole numbers such as $1000 or $500 are not the actual costs of most expenses. If the IRS sees several instances of these figures, it will presume that you have been rounding up numbers. Because of this, an IRS employee will surely recheck your tax return.

The items discussed in this write-up are just some of the many known IRS audit flags and there are still a lot that people should be aware of for them to avoid an audit, and ultimately, IRS trouble.

 Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He teaches attorneys, CPAs and Enrolled Agents in the finer aspects of IRS representation all around the United States. He can be reached at his website at http://www.getIRShelp.com

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