Tax season is upon us. Those who are getting ready to file their tax returns may wonder whether this is the year they are chosen for an audit. Audits are generally not random. There are some red flags that can increase a taxpayer’s risk of a federal audit.

For example, the Internal Revenue Service (IRS) is more likely to audit:

 

  • High net worth. Taxpayers with a gross income over $1 million continue to be at an increased risk of a federal tax audit. Recently reported data shows this group of taxpayers experiences an audit at a rate of 1 out of every 23.
  • Those with foreign assets. Claim a foreign asset? Your risk of an audit goes up. Taxpayers that own foreign assets were audited at a rate of 1 out of every 19. Fail to claim a foreign asset you should claim? You could face criminal charges and potential imprisonment.
  • Individual tax returns. The agency often favors individuals over businesses. Recent data shows the IRS audits 1 out of every 161 individual tax returns. It only audits 1 out of every 224 partnerships in 2017.

Taxpayers flagged for an audit will likely receive a mailed correspondence from the IRS. This letter will explain how the audit will proceed, generally either through additional mailings or the use of a field agent.

Over 90 percent of these audits result in a change to the taxpayer’s tax obligations. Audits conducted through mailings average an additional $6,014 tax obligations while those conducted by a field agent average $21,918. As a result, those who are the subject of an audit are wise to act to protect their interests. An attorney experienced in federal tax audits can help to better ensure a more favorable outcome.