IRS AUDIT TRIGGERS OF PERSONAL INCOME TAX RETURNS

The chances of being audited by the IRS depends on a whole host of factors. Some audit triggers, such as having a high amount of income or having a large amount family that results in a large amount of dependency exemptions, cannot be controlled.  But, certain actions and positions taken on income tax returns are within the taxpayer's control.  Certain positions or ways in which is income and deductions are reported can raise the chances of being audited by the IRS.  The following are not an all inclusive list of factors but they are ones that usually raise the chance of being audited by the IRS:

Failing to report all income

Failing to report all income that is shown on tax reporting forms such as Form W-2s, Form 1099s for reporting dividends, interest and capital transactions.

Home Office

Claiming the home office deduction.  This may be a legitimate expense but realize the IRS forms have a block to check when claiming such expenses and this usually triggers a review.

Large Charitable Deductions

Claiming large charitable contributions as an itemized deduction often brings increased attention to the return.

Travel and Entertainment

Claiming large deductions for business meals, travel and entertainment.  The IRS really sinks their teeth into this area.

Automobile Claimed At 100% Business Usage

Reporting a 100% business use allocation for auto usage.  Commuting expenses are not deductible so it is rare when a taxpayer can justify a 100% deduction for automobile usage.

Hobby Losses

Claiming a large hobby loss deduction.  These rules are very detailed and there are many court cases involving hobby losses. 

First Time Home Buyer Credit

Claiming a first time home buyer credit.  The law allows for this credit but many have abused this provision.  As a result, the IRS is checking such credit claims very closely.

Taxpayer Strategy To Protect and Counteract IRS Challenge

The only way to justify taking these positions or to combat these challenges is to have significant and sufficient documentation and records supporting such claims.  In certain cases, it may be a good idea to attach support for for certain tax positions with the return filing if the taxpayer anticipates there may be an IRS challenge.  Although such documentation may not stop an audit, it may provide sufficient and compelling support to enable the IRS to allow such deductions or credits.  Whether to give details and support on a tax return is a tax strategy that should be discussed with your tax preparer before filing any return.

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