The Internal Revenue Service (IRS) has announced plans to increase its tax audits by 2025, with the goal of uncovering discrepancies in tax returns and improving tax compliance. This initiative will focus on specific taxpayer sectors and is part of a larger strategy to improve tax collection.
According to the IRS’s official website, being selected for an audit does not necessarily imply that there is a problem with your tax return. If the IRS selects your return for an audit, you will receive a formal written request outlining the documents they must review.
How does the IRS decides who to audit?
The IRS employs various methods to select taxpayers for audits:
- Computer screening
- Random selection
- Related examinations
According to Michael Steffany, a tax attorney at Withersworldwide, in an interview with USA Today, the IRS often focuses its audits on specific taxpayer sectors, which include:
- Self-employed individuals
- High-income earners
- Businesses with complex transactions
By zeroing in on these groups, the IRS aims to ensure that tax compliance is maintained across various economic sectors. [image1]
In this context, the expert highlighted that the IRS prioritizes audits in sectors with a higher potential for tax revenue recovery.
Advanced Technology in IRS Audits
The IRS employs artificial intelligence and advanced algorithms to spot irregularities in tax returns. Some of the risk factors include:
- Unreported income
- Unusually high deductions
- Complex financial transactions
By law, you are required to keep all records used to prepare your tax return for at least three years from the filing date.
What Information Should You Provide to the IRS in Case of an Audit?
If the IRS chooses your return for an audit, they must send a formal written request detailing the documents needed for review. Here are some of the records they might ask for:
- Income statements
- Expense receipts
- Bank statements
Additionally, the IRS accepts certain electronic records, although it’s advisable to confirm with your auditor the specific formats that can be used.
In the United States, the law requires you to keep all records used to prepare your tax return for at least three years after the filing date. Failure to provide the requested documentation may cause complications during an audit.
To reduce the risk of being audited, tax professionals recommend taking the following actions:
- Ensure all information on your tax return is accurate and complete.
- Maintain organized records of all financial documents.
- Double-check your calculations and data entries.
- File your return on time to avoid penalties.
If you are audited, it is best to seek the advice of a tax expert. An expert can help reduce legal and financial risks by guiding you through the process and ensuring that everything is done correctly.
