The Internal Revenue Service (IRS) has unveiled plans to intensify its tax audits by 2025, aiming to uncover discrepancies in tax returns and bolster tax compliance. This initiative will target specific taxpayer sectors and is part of a broader strategy to enhance tax collection.
As outlined on the official website of the tax agency, being selected for an IRS audit doesn’t necessarily mean there’s an issue with your tax return. If the IRS chooses your return for an audit, you will receive a formal written request, detailing the documents they need to 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 from the filing date. Failure to provide the requested documentation could lead to complications during an audit.
To minimize the risk of being audited, tax experts 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 advisable to seek the guidance of a tax professional. An expert can help minimize any legal and financial risks by navigating you through the process and ensuring everything is handled properly.