How the IRS Selects Returns

The IRS uses a combination of automated systems, third‑party information matching, and targeted compliance programs to select returns for audit. Returns that don’t match income reported by employers or payers, or that show unusually large or out‑of‑pattern deductions, are more likely to be flagged (IRS, “Understanding Audits”).

In my 15+ years advising taxpayers, the most common avoidable triggers I see are unreported 1099 income, weak documentation for deductions, and repeated errors or amended returns.

Common Triggers and Why They Matter

  • Unreported or mismatched income: The IRS compares W‑2s and 1099s to your return. Missing or inconsistent income is a frequent audit driver. (IRS, “Understanding Audits”)
  • Large or unusual deductions: Deductions far above typical ratios for your income or industry attract scrutiny, especially charitable gifts, unreimbursed employee expenses, and home‑office claims.
  • Cash‑intensive businesses: Businesses with heavy cash transactions face higher risk because cash is harder to trace.
  • Math errors and identity issues: Simple miscalculations, missing Social Security numbers, or SSN/ITIN mismatches can trigger correspondence audits.
  • Frequent or large amended returns: Repeated corrections can draw attention to prior filings.
  • Self‑employment and sole proprietors: Reporting losses year after year or excessive business expenses without supporting records increases selection chances.

Types of Audits (brief)

  • Correspondence audit: IRS requests documents by mail — the most common and least intrusive.
  • Office audit: Meeting at an IRS office to review records.
  • Field audit: In‑person review at your home or business; the most comprehensive.

Practical Ways to Lower Your Audit Risk

  1. Report all income. Match your return to W‑2s, 1099s and other third‑party forms before filing.
  2. Keep organized records. Save receipts, bank statements, invoices, and mileage logs. The IRS generally recommends keeping records for at least three years, and up to seven years for some items (IRS Topic No. 203).
  3. Be conservative and consistent with deductions. Avoid claiming unusually large or round numbers; use precise, supportable amounts.
  4. Reconcile business and personal records. For small or cash businesses, maintain a daily sales log and bank deposits that match reported income.
  5. Use tax‑time checklists and software with error checks to reduce math mistakes.
  6. Consult a tax professional for complex items (home office, rental losses, foreign income) to ensure positions are defensible.

For small business owners, see our related guide on small‑business audit triggers and mitigation strategies for more detail: Small Business Audit Triggers and How to Reduce Your Risk (FinHelp).

For record‑keeping best practices, read our step‑by‑step on maintaining tax records: How to Maintain Tax Records to Survive a State Audit (FinHelp).

If You Receive an Audit Notice

  • Read the notice carefully; it will state the audit type and documents requested.
  • Respond by the deadline. Failure to reply can lead to default assessments.
  • Provide only the documents requested; don’t volunteer extra information that isn’t asked for.
  • If uncomfortable, engage a CPA, EA, or tax attorney to represent you — they can communicate with the IRS on your behalf.
  • Keep copies of everything you send and use tracked mail or secure electronic methods.

Quick Audit‑Risk Checklist

  • Did you report all W‑2/1099 income? — Yes/No
  • Do you have receipts for major deductions? — Yes/No
  • Are business and personal accounts separated? — Yes/No
  • Did you run your return through error‑checking software or a preparer? — Yes/No

Final Notes and Sources

This guidance summarizes common triggers and practical defenses based on IRS rules and professional practice. For official IRS guidance, see Understanding Audits (IRS) and Topic No. 203, How Long To Keep Records (IRS).

Sources: IRS — “Understanding Audits”; IRS Topic No. 203, How Long To Keep Records. (irs.gov)

Disclaimer: This article is educational and not legal or tax advice. For personalized advice about an audit or your tax situation, consult a licensed tax professional.