How the IRS Decides Whether or Not to Audit You

The deadline for filing income tax returns is approaching on April 15. Those who have been audited by the American IRS know that the process can be tedious, lengthy, and often costly, as the auditor almost always finds a way to make you pay for something that was overlooked.
How to avoid being audited?
The best way to reduce the chance of any unpleasant interaction with the IRS is to ensure that your income tax return is consistent with any information returns submitted to the IRS about you, such as Form 1099 or Form W-2.
According to IRS data, which income levels are more likely to be audited?
First, low incomes. Basically, Congress is always very concerned that low-income taxpayers are ‘cheating’ by improperly claiming tax credits, such as the Earned Income Tax Credit.
Second, very high incomes. They are reviewed more because their errors cost the government much more lost revenue. For example, some large corporations are under continuous scrutiny.
Third, self-employed taxpayers reporting income on Schedule C may be more likely to be selected for audit. This is because, while the IRS’s computer matching programs do a great job of detecting potential unreported income, they cannot detect erroneous deductions. So, again, if you report a very large loss on Schedule C and use that loss to offset your decent wage income, that could raise a red flag.
Do recent layoffs at the IRS reduce the risk of an audit?
According to experts, yes. But that doesn’t mean the IRS’s computer systems are turned off. These systems are capable of identifying errors, which can result in an audit.
Can an audit turn into a criminal investigation?
Without a doubt! If the auditor believes that the taxpayer has engaged in fraudulent behavior, the auditor must stop the audit and refer the matter to Criminal Investigation (CI).
The auditor is prohibited from contacting the taxpayer while CI conducts its investigation. So, if you are being audited and suddenly cannot communicate with your auditor, that is a very bad sign.
How many years can the IRS go back in an audit?
As many years as necessary to resolve the issues that led to the audit. For example, if the audit is about whether you correctly reported income from the sale of a property, the revenue agent has the right to request all records of your property up to the time you purchased it to establish the proper basis.
What prevents someone from the IRS from publicly disclosing someone’s income tax return?
Several newspapers have had secure information that the Trump administration is seeking an agreement with the IRS to access the data of certain taxpayers in order to increase its deportation efforts.
Is this allowed?
All IRS employees are trained to keep the information of all taxpayers confidential.
The American Congress wrote a statute in 1998 that provides that any IRS employee who improperly discloses taxpayer information may (and sometimes must) be fired.
Congress also wrote another statute regarding the unauthorized inspection or disclosure of income tax returns or return information. This allows the taxpayer to sue the government and recover at least $1,000 for improper disclosure. Therefore, if the improper disclosure is published in a social media post that receives 1,000 views, that counts as 1,000 improper disclosures.
How will this statute be interpreted after the finalization of the agreement between the Trump administration and the IRS?
It is very likely that this episode will end up in American courts.
Source: Forbes