IRS Audit Red Flags - John R. Dundon II, Enrolled Agent
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IRS Audit Red Flags

IRS Audit Red Flags

The IRS has a computer program that targets certain tax returns for closer examination. It’s called Discriminant Inventory Function System (DIF) and it means that some deductions and credits are more likely to attract the government’s attention than others. Some of these may include:

  • Business Use of Your Car

  • Home Office Deductions

  • High Itemized Deductions for Your Income

  • Non-Cash Charitable Contributions

  • Investment Income Discrepancies

  • Math Errors

  • Home Buyer Credit

  • New-Car Sales Tax Deduction

IRS has said it will examine 100 percent of returns claiming the first-time homebuyer credit.

Keep in mind that only 1 percent of individual returns are audited (3 percent, on average, for individuals with incomes over $200,000). So it’s generally foolish not to take a legitimate write-off just because you think it might up the odds of your return being pulled. Your strategy shouldn’t be to skip deductions on the IRS’s hit list, but to handle them with care and be sure you have documentation to back them up.