As the year begins, people are actively looking to file and pay their returns, but many are still unaware that failing to do so can have a major impact on their finances. Audits are on the rise, and the signs are already here. The IRS is now more equipped than ever to scrutinize tax returns.
With these increased resources, the IRS is focusing more on specific IRS audit triggers, making it essential to understand what factors can raise the likelihood of an audit. If you're wondering, what are the chances of being audited by the IRS? It’s not just about luck anymore. In this guide, we’ll explore the most common audit triggers and how they directly impact your chances of being flagged for review.
What Is an IRS Audit?
An IRS audit is basically the IRS taking a closer look at your tax return to make sure everything’s correct. They check if the income, deductions, and credits you claimed match what they have on file.
It’s not always about making mistakes. Sometimes, they just need more details to confirm what you’ve reported. The IRS may also do audits to make sure everything’s in line and there’s no income left unreported.
How Does the IRS Select Tax Returns for Audit?
The IRS doesn’t just pick tax returns randomly. They have a very specific process, and understanding it can help you avoid stress when filing.
1. Computer Selection
Every tax return goes through a system called the Discriminant Function System (DIF). It’s a scoring system based on patterns the IRS has seen with similar returns. If your return gets a high score, it’s a sign the system thinks something might be off, so it gets flagged for a closer look. But just because your return is flagged doesn’t mean it’s going to be audited; the IRS will review it and decide if it needs more attention.
2. Informants (Whistleblowers)
If someone thinks you’re not reporting your taxes correctly, they can report it to the IRS. The IRS will take a look at the info, and if it seems legit, they might start an audit. And here's the kicker: If the audit uncovers unpaid taxes, the person who tipped off the IRS might even get a reward.
3. Related Examinations
If the IRS is already auditing someone else and comes across something that could affect you, they might kick off a related audit.
4. Targeted Enforcement (Tax Schemes)
The IRS is always on the lookout for tax schemes people try to use to dodge paying what they owe. This can include things like claiming questionable deductions or not fully reporting cryptocurrency transactions. The IRS keeps a close eye on these areas, and if your return looks like it's using any of these methods, you could end up under audit.
IRS Audit Triggers That Increase Your Risk
The IRS doesn’t just pick tax returns out of the blue. There are certain things they’re on the lookout for, red flags, if you will, that make your return more likely to get flagged for an audit. Knowing what these are can help you avoid mistakes and reduce your chances of getting that dreaded letter.
1. Not Reporting All Your Income
The IRS has a lot of ways to check up on your income. They get info from places like your W-2s, 1099s, and even bank interest reports. So, if the income you report doesn’t match up with what they have, it raises a red flag. And that could include side jobs, freelance work, or even investment earnings that you might forget to mention. If you're not reporting everything, the IRS will notice.
2. High Income
The IRS pays more attention to people who earn more. If your income is over $500,000 or especially over $10 million, your chances of being audited go up. They want to make sure that high earners are reporting all their income accurately and paying their fair share.
3. Large Deductions or Losses
Claiming big deductions, like business expenses, charitable donations, or medical costs, that seem out of whack with your income could catch the IRS’s eye. If your deductions look too big for what you earn, they might question whether they’re legit. Things like claiming a large home office or vehicle expenses could raise flags, especially if those numbers seem too high.
4. Big Changes in Income or Expenses
If your income or expenses jump drastically from one year to the next and you don’t have a solid explanation, the IRS might start poking around. Huge increases in income or sudden drops in expenses can look suspicious, and the IRS will want to know why.
5. Home Office and Vehicle Deductions
Home office and vehicle deductions are often under the IRS microscope. These can be easily misused, so if you’re claiming them, you’d better have solid proof. For example, if you’re claiming 100% business use of your car or a massive home office space, you need to back it up with evidence.
6. Cryptocurrency and Digital Asset Activity
Cryptocurrency is a big focus for the IRS right now. If you’re buying, selling, or trading crypto and don’t report it properly, you’re setting yourself up for an audit. The IRS is actively tracking digital assets, so if you’re not reporting gains or transactions correctly, expect them to take a closer look.
7. Inconsistent Data
If there’s a mismatch between what you report and what the IRS already has on file, your return will likely get flagged. For example, if you report less income than your W-2 or 1099 shows, the IRS will notice and might open an audit to figure out why the numbers don’t match.
8. Business Classification and Employment Issues
For small business owners and the self-employed, it’s crucial to classify workers properly and report payroll taxes correctly. If you misclassify employees as independent contractors or mess up reporting employment taxes, the IRS might audit your business to make sure everything’s in order.
Now that we know the triggers, let's see what are the chances of being audited by the IRS.
The Probability of IRS Audit
The IRS is stepping up its game in 2026, with more resources and technology to catch tax errors. So, while audits are still rare, they’re definitely happening more, especially if you’re in certain income brackets. Here’s what you should know:
General Probability of IRS Audit
For most people, getting audited is still pretty unlikely, around 0.5% or less. But here’s the thing: your odds go up depending on factors like your income, the deductions you claim, or anything that might seem off to the IRS. It’s not just about the numbers but the story your return tells.
High-Income Individuals
Now, if you’re making over $10 million, watch out. The IRS is seriously focusing on higher earners in 2026, with audit rates expected to rise from 11% to 16.5%. They’ve got more funding to dig deeper into those returns and make sure high earners aren’t missing anything.
Large Corporations and High-Asset Entities
Big companies with assets over $250 million are also getting more attention. The IRS is expected to increase audits from 8.8% in 2019 to 22.6% by 2026. These big corporations can have a lot of moving parts, so the IRS wants to make sure they’re paying what they owe, too.
Middle-Class and Small Business Taxpayers
For most people making under $400,000, the IRS still isn’t knocking at your door all the time, so the answer to the most asked question, What are the chances of being audited by the IRS, is that your chances of getting audited are still low. But if you’re self-employed, run a small business, or claim large deductions (like on a home office or charity donations), you might still raise a flag. This is especially true if your numbers don’t match up with what your employer or financial institutions reported.
Similar Read → Understanding the Chances of an IRS Audit
How IRS Audits Usually Works?
IRS audits aren’t the scary surprise phone calls or random knocks on your door that some people think. The process has a clear flow that starts with the IRS checking your information and ends with them deciding if your return is accurate. Here’s what usually happens:
How IRS Audits Usually Begin?
IRS audits often start long before you even hear from them. After you file your return, the IRS compares your info with the data they already have, like W‑2s, 1099s, and bank reports. If something doesn’t match, they might flag your return for a closer look. These checks are done automatically by the IRS’s computer systems, looking for discrepancies in things like income, deductions, or credits.
If your return gets flagged, the next step is that the IRS will reach out to you in writing. They’ll never call, text, email, or reach out on social media about an audit. It’s always through official mail.
IRS Audit Letters and Notices
The audit process kicks off when you get a formal letter from the IRS. These letters vary depending on what the IRS needs from you:
- Notice CP2000: This isn’t an official audit yet, but it means the IRS found a mismatch between your reported income and what’s been reported to them by employers or banks. You’ll need to explain or correct the difference.
- Audit Notice Letter (Form 2202 or 2205): This is the real deal. It means your return is officially being audited. The letter will explain what’s under review, what documents they need, and how the audit will happen.
Timeline From Audit Selection to Examination
Here’s how long the process typically takes:
- 1 to 2 years after filing: Most audits start 12 to 24 months after you file because the IRS needs time to process returns and match outside data.
- Response Period: When you get an IRS audit letter, you’ll usually have about 30 days to send in the documents they ask for, unless the letter says otherwise.
- Duration of the Audit: Simple audits, like mail audits, are usually wrapped up within a few months. But if the audit is more detailed and happens in person (like an office or field audit), it can take longer.
Most audits are resolved within a few months if you send in the right info quickly.
Types of IRS Audits
Once your return is selected, the IRS will choose one of a few different ways to conduct the audit:
- Correspondence Audit (Mail Audit): This is the most common type. The IRS will send a letter asking you to mail in records for specific items on your return. You don’t have to leave your house; just send in the receipts, forms, or explanations by mail.
- Office Audit: For this one, the IRS will ask you to come into an IRS office to present your records. They need more info than they can get by mail, but it’s not serious enough for them to visit your home or business.
- Field Audit: This is the most thorough kind. An IRS agent comes to your home, business, or accountant’s office to go through your records in person. These audits usually happen when the IRS needs to look at complex situations or records from several years.
Also, the IRS may send you automated notices like the CP2000 if they notice a mismatch in your reported income. These aren’t full audits, but if you don’t address them, they can lead to a closer look or even an audit down the line.
What Happens After You Are Selected for an IRS Audit?
Once your tax return has been selected for audit, the process begins with a notification from the IRS. Here's how things typically unfold:
Document Requests and Information Review
The audit process officially starts when you receive an initial notification letter from the IRS, usually by mail. This letter will explain whether your audit is a correspondence audit, an office audit, or a field audit. Along with this letter, you will receive an Information Document Request (IDR), which lists the specific records and documents you need to provide to the IRS.
- Gather Records: It's important to remember that the IRS requires you to keep all records related to your tax return for at least three years. You’ll need to gather receipts, bills, invoices, bank statements, and any legal documents that back up your reported income, expenses, and deductions.
- Respond Timely: The IRS will typically request a response within 30 days. It’s essential to meet this deadline, but if you need more time, you can usually request a one-time 30-day extension for correspondence audits.
- Provide Copies Only: Always send copies of documents, not the originals. Keep your own set of all records you send to the IRS, in case you need to refer to them later.
- Be Truthful and Concise: If you have an in-person interview with the IRS, answer all questions truthfully, but avoid volunteering information that wasn’t asked. This will help keep the audit focused on the issues the IRS is reviewing.
Risk of Audit Scope Expansion
The scope of your audit may expand beyond the items originally mentioned in the audit notice. Here’s what could happen:
- During the Examination: If the IRS agent finds large discrepancies, unusual items, or substantial errors, they have the authority to expand the scope of the audit to other areas of your return.
- Additional Years: If the IRS discovers a substantial error, such as omitting more than 25% of your gross income in the audited year, they may expand the audit to other years, sometimes going back six years. In cases of fraud or failure to file, the IRS may go back even further or audit indefinitely.
- Notification: If the scope of your audit is expanded, the IRS is required to send you a written notice explaining the change.
Possible IRS Audit Outcomes
After reviewing all the requested documents, the IRS will issue an audit report outlining its findings. Here’s what can happen next:
- No Change: The IRS may accept your return as filed. This means that after reviewing the documents, the IRS finds everything to be in order, and no changes are necessary.
- Agreed: The IRS may propose changes to your tax return, and if you agree with those changes, you will sign the examination report. You’ll then arrange to pay any additional taxes owed, plus any penalties and interest.
- Disagreed: If you do not agree with the IRS’s proposed changes, you have the right to challenge the decision. The IRS will send a 30-day letter, giving you 30 days to request an appeal with the IRS Office of Appeals. If you don’t respond or don’t reach an agreement during the appeal, the IRS will send you a 90-day letter (Notice of Deficiency), which gives you 90 days to file a petition with the U.S. Tax Court.
Note: If you believe the audit decision was incorrect, you can also request IRS audit reconsideration. This allows you to present new evidence or correct any mistakes without going through the full appeal process.
Also Read → 10 Common Mistakes Made During IRS Audits and How to Avoid Them
How to Reduce Audit Risk and Prepare Properly?
To reduce your audit risk, focus on the actions that make your tax return clear, accurate, and unlikely to raise any concerns with the IRS. Here are some strategies to ensure your return stays in good standing:
1. File with a High-Quality Tax Software or Professional Review
Use reliable tax software that checks for common mistakes or hire a CPA or EA if your tax situation is complex. Having a second set of eyes ensures your return is accurate and doesn’t raise red flags.
2. Reconcile Every Third-Party Report Before Filing
Double-check that W-2s, 1099s, and other income documents match your reported figures. The IRS cross-checks this data, so ensure everything aligns before you file.
3. Structure Deductions for Predictability
Avoid large swings in deductions. Spread out big deductions over time (e.g., charitable donations, business expenses) to make your return look more consistent and avoid raising suspicion.
4. Validate Unique Situations with Written Support
For unusual income or deductions (e.g., home office, business losses), include a brief explanation with your return, backing it up with proper documentation. This helps the IRS understand your claims without needing extra information.
5. Use Safe Harbor and Clarify Ambiguous Areas
Where possible, take advantage of safe harbors the IRS offers for things like home office or asset depreciation. This can help you avoid additional scrutiny, as these areas are already defined by the IRS.
6. Run Your Own Internal Audit Before Filing
Before submitting, review your return like a financial statement. Check for income and deduction consistency and make sure there are no discrepancies or missing information that could trigger an audit.
7. Keep a “Documentation Roadmap,” Not Just Records
Create a simple, one-page roadmap for each major deduction or income source. This helps you easily access the documents the IRS may ask for if you are audited.
8. Treat Large, Unusual Items as “Audit-Likely.”
Large deductions like non-cash donations or complex business losses are higher audit risks. If you have these, be extra careful with documentation and include explanations up front.
9. Avoid Common “Red Flag” Combinations
Certain combinations, like large business expenses with low revenue or big deductions with little income, are common audit triggers. Ensure these are supported by solid documentation and make sense within the context of your return.
10. Get a Second Opinion on Complex Returns
Before filing, have your return reviewed by a qualified IRS tax specialist if it is complicated or contains high-risk items. They can provide you with peace of mind by identifying possible problems that you might miss.
Still Wondering What The Odds Are Of Getting Audited By The IRS?
When it comes to understanding IRS audits and the triggers that set them off, experience is what matters most. Mr. Michael Sullivan, with over 10 years of direct IRS experience and 42 years in private practice, knows exactly how the IRS works and what they’re looking for. Having worked on both sides of the fence, he understands the system inside and out and uses that knowledge to help you avoid costly mistakes and unnecessary audits and provide strong audit defense. When you work with him, your odds of getting audited by the IRS are as close to zero as possible.
Get in touch with him today to make sure your tax filings are on track and that you’re fully prepared for any potential IRS scrutiny.
