IRS Audits: Avoid IRS Investigations by Filing Correctly


Common Triggers for IRS Audits

avoid irs auditsMovies and TV made IRS audits infamous for causing havoc and financial ruin in a person's life. Many taxpayers never have to worry about being audited, because their tax returns are fairly simple and they have only one source of income. However, easy mistakes on a slightly more complicated tax return can turn the scrutinizing IRS eye on you. This page will help you avoid IRS audits by showing you what triggers them.

IRS Audits Related to Income

Abusive Tax Shelters

Did someone teach you a nifty tax loophole that makes it look like you made less money than you did? Sneaky tricks can trigger some of the most aggressive IRS audits. Some of the ploys people attempt include:

  • Abusive IBC and Roth IRA transactions.
  • Using foreign corporations, etc to hold money and assets as a "Tax Haven."
  • Inflating business losses in partnerships.

Make no mistake. If you try to cheat the IRS, they will catch you, and you will pay the price.

Unreasonable Salaries

If you are a shareholder, the IRS has certain expectations of what your salary is. The IRS is not foolish enough to believe that you are paid anything less than minimum wage, and certainly doesn't expect that you are working for free. They also don't expect that you will make five times as much as other officers in a similar position. Be sure to report a salary that matches what the average salary is for someone in your position to avoid IRS audits.

Hobby vs. Profitable Business

You will not be taxed as a hobby if your business shows a net profit three years out of a five-year period. If this is not the case with your business, you will have to prove that your business is motivated by and working toward a profit. Businesses viewed as hobbies by the IRS will face IRS audits.

Income Reports

If your income does not match what the IRS has on file for you, IRS audits are in your future. These can include simple errors such as forgetting one 1099 check to more serious mistakes such as not reporting income from your second job. The IRS will send a CP-2000 proposing changes to your return for small errors. Greater ones trigger vigorous IRS audits. This is why you should never lie about your income.

IRS Audits that May Blindside You

Computer Scoring

All tax returns are processed through the IRS computer system. They are also scored on their potential for change, which is based on previously filed similar returns. Returns with high scores are more likely to trigger IRS audits.

Large Corporations

The bigger a corporation is, the bigger the tax errors may be. Every year, the IRS audits the big players of America's businesses to make sure that everything is being filed correctly. Needless to say, large corporations should always have reputable CPA's and Tax Attorneys on staff in case the IRS audits them.

Related Examinations

Is your business partner getting audited? Get ready to go through your own. IRS audits spread from taxpayer to taxpayer due to related issues or transactions during the periods being audited. This is just another reason to be careful who you do business with.

If you need help preventing IRS audits, consult a professional. Call now or fill out the form below for a free tax debt consultation to keep IRS audits out of your life! We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.


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