As we enter tax season, it is good to keep in mind some common red flags that can trigger an audit by the Internal Revenue Service (IRS). Things that can increase the risk of an audit include:
- Filing unusual returns. Any tax return that includes large or questionable items that are unusual compared to a typical tax return are at an increased risk of a closer look by the IRS. If you have such a return, be sure to keep a copy of paperwork to back up the claims. This will help to ease the process in case the agency asks for additional information or conducts a more thorough audit after reviewing your returns.
- Having foreign assets. Unfortunately, those who have assets abroad or foreign business interests are at an increased risk of scrutiny by the IRS. Be sure to file all required forms, potentially including a Report of Foreign Bank and Financial Accounts (FBAR). It is wise to contact an attorney if you are not sure that your accounts are in full compliance with applicable tax laws.
- Having over $1 million in gross income. The wealthy are also a target for the IRS. An individual with a gross income before tax deductions that exceeds $1 million has a 1 in 23 chance of getting audited.
An audited taxpayer can face serious penalties. You can take action to reduce this risk. An attorney experienced in IRS audits can advocate for your interests and better ensure your legal rights are protected during the process.