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Causes of IRS audits

| Mar 5, 2018 | audits

The probability that Maryland residents will be audited by the Internal Revenue Service is pretty low. In fact, less than 1 percent of all tax returns will be selected for an audit. However, there are certain types of entries on a return that may compel the IRS to pay closer attention.

The IRS uses the majority of its resources to make sure that those making the highest incomes are paying all of the taxes they owe. Errors that are on a return for someone who took home millions of dollars the previous year is much more likely to result in more money than errors found on a return for someone who earned less than $100,000.

Another red flag for the IRS are returns that report no income. For the 2016 tax year, nearly 3.25 percent of returns that reported zero adjusted gross income were selected to undergo an audit. Even though there are many cases in which the zero adjusted gross income is legitimate, there is also a chance that returns with no adjusted gross incomes may have underreported incomes.

Another issue that can catch the attention of the IRS is unreported income. The information companies provide to their employees or independent contractors in their W-2s or 1099s are also reported to the IRS, which will compare the information from the company with what is reported on the recipient’s tax return. If the numbers the taxpayers provides on their return is less than what is reported by the company, they are likely to receive a tax assessment for the difference.

Taxpayers whose returns have been selected for audits by the IRS may want to meet with an attorney to discuss how to proceed. In many cases, the attorney can appear at the audit on behalf of the client.