Causes of IRS audits

On Behalf of | Mar 2, 2018 | Tax Law

While Minnesota residents should not be overly concerned about being audited by the IRS, they should be aware of what could prompt an audit. There are multiple factors that can initiate a review of a return.

A large portion of the IRS’s resources focuses on verifying that top income earners are paying their taxes. Tax return errors for a taxpayer who earned several million dollars the year before is likely to yield more money than a mistake on a tax return for someone who earned around $50,000 for the same year.

Another type of return that may garner a closer look by the IRS is one that reports very little income or none at all. In 2016, nearly 3.25 percent of the returns that had no adjusted gross income were selected for an audit. Even though many taxpayers truly have no income to declare, it is also likely that someone who reports no adjusted gross income could be misrepresenting how much he or she really earned.

Business owners should also be careful of what they put on their return. Business deductions will be cause for a closer look if they do not make sense or seem to be related to a hobby instead of a business activity. It is important to be aware of the differences between business and unreimbursed employee expenses, both of which are reported on separate areas of the return.

Extremely high itemized deductions are also a red flag. If the amounts reported are much higher than average, the IRS will want to take a closer look.

A tax law attorney may advocate on behalf of a client who is being audited by the IRS. A lawyer may advise clients about the tax laws that are pertinent to their case and may work to get any penalties and interest assessed on overdue taxes reduced.