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Why am I Audited by the IRS
Reasons why you are audited by the IRS
Why am I audited by the IRS?: 8 Invitations to an IRS Audit
Due to the current federal deficit, there is a $300 billion gap between the amount that we pay in taxes and the amount the IRS believes we should have paid. To close this gap, the IRS is conducting more audits, trying to find that extra tax money and mistakes that you may have made when filing.
The IRS has posted a job that is titled Internal Revenue Agent (Abusive Transactions Group) The job description for this position states, "Agents of the Abusive Transactions Group will be conducting examinations of individuals, sole proprietorships, small corporations, partnerships and fiduciaries. This group specifically goes after taxpayers who generally have higher incomes than most taxpayers, need to file more tax forms, and generally need to rely more on paid tax preparers."
You may make the mistake of believing you will not be targeted for an audit because you are not wealthy, do not have an accountant filing your forms or do not operate a cash business. Even though you engage in none of these, you are still a target. In fact, tax return audits doubled from 2000 to 2009. During the same time period, enforcement earnings increased by 50 percent.
Unfortunately, not every taxpayer is treated impartially with regards to the potentiality of an audit. Of businesses that have less than $10 million in assets, one in every hundred or 1% will be audited by the IRS. For those with $10-$50 million in assets, that number jumps to ten out of every hundred businesses or 10% that are audited. When the business has more than $250 million in assets, they have a 1 in 4 chance or 25% of being audited.
There are certain industries that will be targeted more than others. Cash businesses are always on the top of the list. You may be surprised at the target groups of the IRS. There are auditor guidebooks for many industries, including veterinarians, Laundromats, car dealers, ministers and many more. There are specific auditing strategies for the IRS in the Retailer Guide which are aimed at e-commerce businesses, direct sellers, pizza shops, mobile food vendors and gas stations.
It is important for you to be aware of the red flags that could lead to an IRS audit.
1. Math Errors or Calculation Errors Submitted to the IRS
2. Unusually High Itemized Deductions
3. Self-Employed / Schedule C Taxpayers
4. Submitting many 1099s to the IRS
5. Unreported Income to IRS
6. Previously Audited by the IRS
7. Shareholder of a Company
8. Disgruntled Former Employees
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