What can cause an IRS audit of your taxes?

Q Tax season is at hand. My concern is a tax audit. Have never had that problem, but are there certain “items” that may trigger an IRS audit? — P.N., Los Alamitos A The IRS indicates that audits can be triggered through a random selection process by which a computerized system compares a return against norms for similar returns. An additional trigger is when the information on your return is connected to someone else who may be a business partner or investor, and that individual is being audited.

Research indicates that in recent years, the IRS has audited those whose incomes are below $25,000 or above $500,000. Last year (I am reading), 3.8 out of every 1,000 returns were audited by the IRS. So, the chances of an audit are modest, but your concern is well understood. Bottom-line, there is no substitute for working carefully and accurately on your return, which may call for the help of a tax professional.

From reading, here are various items that might cause an IRS audit:

• Excessive real estate deductions by landlord and investors.

• Not including all of the dividends and interest you earned.

• Missing capital gains, such as on stock sales.

• Failure to report cryptocurrency (evidently, cryptocurrency has been a stalking horse for the IRS).

• Filing late.

• Not reporting all of your income (which also ties in to “b” and “c” above).

• Claiming excessive charitable deductions.

• Running a cashbased business, particularly if you combine lower earnings with large cash transactions.

• Deducting a variety of entertainment expenses.

• A home office deduction may at times raise a pink flag.

• Using what are “neat numbers” e.g., round and tidy, as it were.

• Making mistakes. Q How do you find out if you are being audited by the IRS, and then if you are, what do you do?

— M.G., Santa Clarita

A

If you are going to be audited, it will come from the IRS through the mail as a certified letter. Do not mistake correspondence from the IRS that indicates you owe money as notice of an audit. In addition, while easier said than done, do not instantly go into a panic. The government is double-checking your numbers. If you are confident in your return, the process should not turn up unpleasant surprises.

Research also emphasizes that it is important to remain polite and professional, and keep the deadlines in mind (but, if you need more time, then ask the auditor for more time). If you have questions, and particularly if you are doing this alone — not with the assistant of someone else, such as your accountant — you can reach out to the auditor with questions or concerns. The audit will either be by mail or by interview. Evaluate how best to deal with the situation. And get your ducks lined up, which in large part means your supporting documents and records.

IRS audit

The IRS has an online link that seeks to provide information about an audit: irs.gov/businesses/small-businessesself-employed/irs-audits. Or, in your web browser, type “IRS.gov., audit”.

Ron Sokol has been a practicing attorney for more than 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.