Key Points
- The IRS is working on plans to avoid increased audits on taxpayers making less than $400,000 — but certain areas can invite scrutiny, regardless of income.
- Some red flags could include unreported income, including cryptocurrency earnings and unreasonable tax breaks.
- For all returns filed between 2013 and 2021, the IRS examined 0.44% of individual returns and 0.74% of corporate returns as of the end of fiscal 2023, according to the latest Databook.
The IRS is still working on plans to avoid increased audits on taxpayers making less than $400,000 — but certain particulars of your tax return can invite scrutiny, regardless of income level, experts say.
The Treasury Inspector General for Tax Administration, or TIGTA, last week reported the IRS has made “limited progress” in developing the methodology for its audit coverage calculation to comply with a directive from the U.S. Department of the Treasury.
In August 2022, Congress approved $80 billion in IRS funding, including tens of billions earmarked for enforcement. The same month, the Treasury issued a directive to the IRS, saying the funds couldn’t be used for increased audits on small businesses or households earning less than $400,000 annually.
In response, the IRS agreed to TIGTA’s recommendations and plans to document the development of its audit methodology, the report said.
Meanwhile, the IRS has continued to focus enforcement efforts on higher earners, large corporations and complex partnerships. The Treasury Department on Friday announced $1.3 billion has been recovered from “high-income, high-wealth individuals.”
“It’s not right that everyday Americans pay taxes while struggling to make ends meet, but some of the wealthiest in this country have been able to evade payment,” Treasury Secretary Janet Yellen said Friday at an event in Austin, Texas.
Regardless of your income, here are some red flags for IRS audits, according to tax experts.
It’s easy for IRS to catch missing income
While IRS enforcement is focused on wealthy Americans, everyday taxpayers could still face an audit if they haven’t filed an accurate return, experts say.
One common red flag is missing income. Employers and financial institutions use so-called information returns, such as Forms W-2 or 1099, to report your earnings directly to the IRS. Once the agency has information returns, it can easily flag incomplete filings.
