IRS Audit Triggers – Killer Red Flags To Watch For

Changes In Income

There’s not much you can do here to avoid some IRS audit triggers. Income can go up or down, but your expenses may stay close to the same. Just remember to document with explanations, anything that looks odd on your tax return. We can review your returns to see what sticks out.

Charitable Deductions

The IRS seems to think that people in your tax bracket should only give a certain amount to charity. I think if you do give an amount that seems large, then explain it. Footnote the return about how you found God this year and felt it necessary to be overly thankful to make up for the past. You could more believably, just include documentation with the return and hope the auditor reads it. I represented a taxpayer who actually sent in documentation for all items on his return. The auditor told us that it was the most documented return he’s ever seen. The audit took place anyways, even though we made sure not to overlook any IRS audit triggers. Luckily the audit adjustments were very small. So document high charitable deductions and other items as necessary. There is no guarantee they will prevent an audit.

Income From Off Shore Accounts

This has gotten a lot of people worried. I have actually had audits where the taxpayer was selected because they found bank transfers from other countries! I have amended returns because of people not reporting their overseas accounts that totaled over $10,000. Just make sure you meet all reporting requirements for any foreign transactions.

Deduction Of Large Casualty Losses

We have seen this IRS audit trigger before. Often it is done by misinterpreting the rules. Just because you have a casualty loss does not mean it’s deductible. Auditors know most people don’t keep the required documentation to support their claim. We usually help our clients by asking them to be prepared for an audit at the time their tax return is prepared.

Income From A Full Time Job And A Loss In Sch C

The IRS will probably automatically think that you have a hobby. This was something we did in the 1970′s to lower income. The IRS is fully aware that most people won’t meet the test for spending enough hours to give the business the consideration needed to produce a profit. We have an audit appeal filed on this very issue.