Being audited by the IRS is the most dreaded fear of most taxpayers, but instead of panicking, it would be helpful if taxpayers understood what triggers an audit. You may think the IRS is out to get you, but really, the service is just searching for discrepancies that indicate that a taxpayer’s return is either incomplete or inaccurate. E-filing your return can impact your return's accuracy, so it’s important that you understand how that might increase or decrease your chance of being audited.
Generally, the IRS audits returns within only the previous one to three years. Although the IRS routinely audits large corporations, audits of individual tax returns are rare. To reduce bureaucracy, the IRS has pushed to make e-file the primary method for filing tax returns, so e-file no longer stands out as a filing method.
The IRS Discriminant Function System compares incoming tax returns and assigns them a score. Returns with high scores are more likely to get pulled for an audit than those with low scores. If your return is pulled because of a high score, it is likely the IRS audit will result in an increase in your tax liability. There is no indication that the process you use for filing a return, be it filing electronically or paper filing, impacts your chances of being audited.
Among the actions that can trigger an audit include claiming large charitable deductions, omitting reported income, taking a large deduction for a home-based business, claiming a hobby as a business, using a questionable tax preparer to complete your return, writing off large amounts of unreimbursed business expenses, taking deductions in round numbers, making math errors on your return, claiming business use of a vehicle, and failing to file an income tax return. Since omissions on your return can contribute to an audit, review your e-file return thoroughly before clicking the "submit" button. Also, closely monitor the alerts provided by most online tax preparation services, which are there to catch your mistakes.
Initially during the roll-out of e-file, some tax preparers expressed suspicion that e-filing a return would expose a taxpayer to an audit verification process that paper filers were not exposed to. What those accountants did not fully understand was that the math-verifying feature found in most online tax preparation software helps protect filers by checking returns before they are submitted to the IRS. In this sense, tax preparation software protects tax filers from math errors that could trigger audits.
Denise Caldwell is a finance writer who has been writing on taxation and finance since 2006. Her articles appear regularly on websites such as Gomestic.com and MoneyNing.com. She has taken what she learned while working at the IRS to provide readers with helpful tax and finance tips. Caldwell received a Bachelor of Arts in political science from Howard University.