Triggering a Tax Audit from the I.R.S.
Tax Attorney Kevan McLaughlin was in studio with some tips to help you file your taxes without receiving an audit from the I.R.S.
McLaughlin detailed four main items that he believes could trigger an audit:
1. Avoid “Over Expensing” Incidental Business Items
Travel, meals/entertainment and other incidental expenses get extra scrutiny from auditors, particularly if itemized in small business returns. Individuals – especially small business owners – that declare a disproportionate amount relative to industry standards will raise an eyebrow or two. Ensure each charge comes with an explanation of the expense and correlate it to a justifiable activity.
2. Don’t “Under Report Expenses”
State and federal agencies will more likely audit a tax return if any third-party vendor – like a credit card company – reports a company or individual’s transactions were higher than stated by the business owner or taxpayer. These include the sale of an asset as well as credit card statements and 1099 forms.
3. Be Wary of “Problem Preparers”
Believe it or not, the IRS maintains a list of individual tax preparers that the agency believes do not accurately file an adequate number of returns. The mere fact that they sign an individual or company’s return may trigger a review.
4. Be Aware of Certain “Audit Triggering Transactions”
Regardless of the amount, specified expenses will get flagged by the IRS as questionable nearly every time. Conservation easements rank as one of the best examples. In these circumstances, a landowner voluntarily donates or sells a piece of property that legally binds the recipient to certain types of uses or prevents development from taking place on the land in perpetuity, like preserving the land for conversation reasons. It may be altruistic in nature, but the seller gets significant tax benefits when this happens. The IRS will audit these types of events more often than not.