The Internal Revenue Service (IRS) pushed back the tax deadline to July 15, 2020. The deadline is fast approaching, and as taxpayers finalize their returns, they may find themselves wondering “what triggers a tax return?”
Although invasive audits have declined, audits still happen. They can come in the form of a correspondence audit, which essentially just means the audit is conducted through a series of mailings between the agency and the taxpayer. Or, in some cases, they can still come in the form of an IRS field agent knocking on your front door (not common.)
It can help to know what triggers an audit to reduce the risk of becoming a target. Some common examples include extremes in income, the presence of foreign accounts and the use of cryptocurrency.
Example #1: Extremes in income.
Whether at a very high level or a very low level, any extremes in income are likely to increase the risk of an audit.
Example #2: Foreign accounts.
Those who have assets in other countries are also at an increased risk of an audit. It may be tempting to skip reporting these assets, but this is not wise. The U.S. government has global agreements requiring financial institutions to report on U.S. citizens. A failure to proactively report these accounts can result in allegations of tax crimes. If substantiated, allegations of intentionally failing to report taxes can come with serious financial time and even a prison sentence.
Example #3: Cryptocurrency.
Cryptocurrency, a digital asset such Bitcoin, can also lead to an audit. The IRS requires taxpayers to report this relatively new asset.