The IRS is currently in the process of developing plans to avoid increasing audits for taxpayers earning less than $400,000 annually. However, certain aspects of your tax return can still trigger scrutiny, irrespective of your income level, according to experts.
The Treasury Inspector General for Tax Administration (TIGTA) recently reported that the IRS has only made limited progress in creating a methodology for its audit coverage calculation. This is in order to comply with a directive from the U.S. Department of the Treasury. Despite Congress approving $80 billion in IRS funding last August, with a large portion dedicated to enforcement activities, the Treasury directed the IRS that these funds cannot be used for increased audits on small businesses or households earning less than $400,000 annually.
While the IRS has agreed to comply with TIGTA’s recommendations, it continues to focus its enforcement efforts on higher-income earners, large corporations, and complex partnerships. The Treasury Department recently announced that $1.3 billion has been recovered from high-income individuals, highlighting the government’s commitment to cracking down on tax evasion among the wealthy.
Regardless of your income level, there are certain red flags that can trigger an IRS audit. One common red flag is missing income, as information returns like Forms W-2 and 1099 are used by employers and financial institutions to report earnings directly to the IRS. Failure to report all income can easily lead to an audit. Additionally, crypto investors are now under increased scrutiny, with mandatory reporting requirements for digital asset brokers starting in 2026.
Claiming unreasonable deductions can also raise red flags with the IRS. For example, if you claim a large amount of charitable deductions relative to your income, it may invite scrutiny. It’s important to have detailed documentation to support all deductions and credits claimed on your tax return. Without proper documentation, deductions can be disallowed during an audit.
Despite the focus on certain groups like high-income individuals and large corporations, IRS audits remain relatively rare. As of the latest data available, the IRS examined only 0.44% of individual returns and 0.74% of corporate returns filed between 2013 and 2021. While the chances of being audited are low, it’s important to file accurate and complete tax returns to avoid any potential issues with the IRS.
While the IRS is working to avoid increased audits on lower-income taxpayers, there are still certain triggers that can lead to scrutiny from the agency. By understanding these red flags and ensuring compliance with tax laws, taxpayers can minimize their risk of being audited by the IRS. It’s crucial to file accurate and complete tax returns, keep detailed records, and seek professional help if needed to navigate the complexities of the tax system.