What Triggers an IRS Audit?

 Posted on March 11, 2025 in Criminal Defense

Filing taxes is never fun, but nothing is more nerve-wracking than receiving an audit notice from the IRS. While most people will never face an audit, certain tax return mistakes can raise red flags and increase the likelihood of IRS scrutiny about tax evasion. Even an honest mistake could lead to a time-consuming and stressful process. Knowing what triggers an audit and how to avoid common tax mistakes can help keep you out of trouble. If you are audited, a Virginia criminal defense attorney can help protect your rights and advocate on your behalf.

What Are the Most Common IRS Audit Triggers?

The IRS selects tax returns for auditing based on various risk factors, patterns of noncompliance, and random sampling. Some of the most common triggers include unreported income, excessive deductions, and repeated business losses. The IRS will cross-reference tax return information with W-2s, 1099s, and other financial records. If the numbers do not match, the agency may further investigate the situation.

Another red flag is claiming large deductions that are disproportionate to your income. For instance, if a taxpayer reports $50,000 in earnings but deducts $30,000 in charitable donations, the IRS may question whether those contributions were legitimate. Similarly, small business owners who consistently report losses may be audited under 26 U.S. Code § 183, which limits tax deductions for activities that the IRS does not consider real business.

Tax returns that claim the Earned Income Tax Credit (EITC) tend to receive more scrutiny because of past fraud cases. The IRS also monitors cash transactions, as large, unreported cash income may indicate tax evasion.

How Can Small Business Owners Reduce Their Risk of Being Audited?

Small business owners are at a higher risk for IRS audits due to the intricacies of self-employment taxes, deductions, and record-keeping. To reduce the risk of being audited, business owners should:

• Maintain thorough records: This entails keeping receipts, invoices, and financial statements to support all reported income and expenses.

• Separate business and personal finances: A dedicated business bank account can help ensure accurate financial reporting.

• Avoid claiming excessive deductions: The IRS may question deductions that are excessively high compared to industry standards.

• Report all sources of income: Gig workers and independent contractors need to report earnings from all clients, even if they do not receive a 1099 form.

Virginia small business owners must also comply with state tax regulations, including Virginia Code § 58.1-3900, which governs self-employment and business tax obligations.

What Should You Do If You Are Audited?

If you receive an IRS audit notice, you must first carefully review the letter to understand why your return is being examined. The IRS may request additional documentation or explanations for certain deductions. Responding promptly and providing accurate records can help resolve the issue more efficiently.

If the audit is complex or involves significant tax liabilities, it is essential to consult with a skilled attorney. A lawyer can review your records, communicate with the IRS, and help negotiate a fair resolution. Ignoring an audit notice or providing incorrect information can result in additional penalties, so it is important to take the process seriously.

Contact a Fairfax County, VA Tax Evasion Lawyer for Help

If you are facing an IRS audit or want to reduce your audit risk, a Fairfax, VA criminal defense attorney can provide the legal guidance you need. To learn more about how Robinson Law, PLLC can protect your rights, call 703-844-3746 for a free consultation. We are available 24/7 and here to help you navigate this daunting process. Hablamos Español.