Every year Americans go through their papers to report their income from the previous year to the IRS and hope that they don’t have to settle any debts with Uncle Sam, or even better if the Treasury will cut them a check. However, for many taxpayers, there is always that lingering worry that they will be audited by the IRS, the idea of which sends shivers down American taxpayer's backs.
Fortunately, very few actually get audited but some are more likely to get a letter from Uncle Sam informing them that there may be an issue with their tax filing. Here are the people that the IRS is more likely to ask to clarify their tax declaration.
Who will the IRS select for an audit?
The IRS says on its website that “selection for an audit does not always suggest there’s a problem.” It uses different selection methods that could trigger an audit for a taxpayer. One is random selection which is “based solely on a statistical formula.”
Using “norms” that have been developed as part of the National Research Program the IRS conducts, the agency compares your tax return against those of your peers. If something looks to be outside the norm there is a higher possibility that you will be audited.
Another is “related examinations” where a taxpayer’s return involves issues or transactions with another taxpayer who is being audited. Typically, this happens when the IRS is reviewing or examining the tax declaration of a business partner.
Things that increase the likelihood of an audit
You want to avoid errors when preparing your tax return. The IRS provides a list of common mistakes that the agency sees every year that you will want to avoid to ensure your return is processed on time. But below are the certain groups that have a better chance of being audited.
Claiming excessive deductions
If you are claiming excessive deductions, as mentioned above, you will most likely be outside the “norm” of your peers which could trigger a review and deeper examination of your financial declaration.
This could be especially tempting for the self-employed through overstating the amount of their home that is dedicated to their home office for example. Another common expense that is abused is exaggerating how much you are using your vehicle for business purposes.
Also deducting expenses that are clearly not related to the actual running of the business. The IRS will expect you to have documentation to justify all the deductions you make.
High earners get audited more
According to the IRS between 2013 through 2021 the agency examined 0.44% of individual returns. Although, over that same period, 8.7% of taxpayers who reported income of $10 million or more were audited. However, in more recent years the rate that high earners were audited “dropped precipitously.”
So, in 2023, the IRS said that it would “shift attention to wealthy from working-class taxpayers.” Specifically, those who earn more than $400,000 per year. The agency, using funding from the Inflation Reduction Act, planned to employ “Artificial Intelligence and improved technology to identify sophisticated schemes to avoid taxes.”
Audit rates are high for those who claim the EITC
Refundable tax credits like the Earned Income Tax Credit (EITC) allow taxpayers to get bigger refunds from Uncle Sam when the credit exceeds what the filer owes in taxes. The EITC though has come under attack for the high rate of audits it triggers for those that claim it.
The credit, which is worth up to $7,830, is designed to assist low- to moderate-income workers, but 82% of audits performed on individual taxpayers with income under $50,000 had claimed the EITC in 2019 reported the Taxpayer Advocate Service. Over 90% of that taxpayer received a correspondence audit but more than a third failed to respond resulting in the IRS disallowing them the EITC.
The Internal Revenue Service (IRS) has fired 7,000 workers in Washington, D.C., and around the country—layoffs occurring right as the 2025 tax return filing season hits full steam.
The cuts are one step in the charge of the newly created Department of Government Efficiency’s goal of reducing the deficit by $1 trillion—which has begun with mass layoffs at multiple government agencies, leaving federal employees baffled and setting the stage for future legal battles.
In a statement obtained by the Washington Post, former IRS Commissioner Charles Rettig, who worked under President Donald Trump’s first term, stated that “there should not be a significant impact on current filing season operations.”
Some experts are expecting potential disruptions, though.
“If you fire thousands of IRS employees broadly during the tax season, it's hard to do that in a way that doesn't pose risks to the filing season,” said Michael Kaercher, Deputy Director of the Tax Law Center at NYU Law. “They've said that they are not firing people who are critical to the tax filing season, but until we know exactly who those folks who have been let go are, I don't know that we can verify that with any level of certainty.”
Kaercher says that risks to the filing season could include delayed tax refunds, inability to answer as many phone calls or help lines, and “there’s a question of whether they retained the right people in the house” to quickly solve technical issues should they arise during tax season.
Kaercher also notes there were reports of the IRS removing several pages of sections of their Internal Revenue Manual, which outlines its policies and procedures, which could prevent taxpayers from fully complying with their fine obligations.
Kaercher notes that these changes will not simply affect this tax season, but could have long-term effects on the work of the tax agency.
“The layoffs will undermine revenue collection and increase the budget deficit. Most of the IRS employees laid off worked in tax compliance, which raises revenue by preventing tax fraud.” Kaercher wrote on X. “These cuts will encourage wealthy people and large corporations to cheat on their taxes. After a decade of sharp budget cuts, audit rates for high-income people and large corporations plummeted.”
Ed Oswald, partner at Orrick Law Firm in Washington D.C. and former attorney-advisor for the U.S. Treasury Department says there are a few ways that taxpayers can prepare themselves for both the short and long-term consequences of the IRS cuts, especially as he expects “less regulation, less clarity and less guidance.”
“Keep in close tax contact with your CPAs or accountants who are working with you in terms of a tax return,” Oswald said. “Try to document matters the best you can…even though the IRS is really dropping the ball here, you want to show as a taxpayer, you're being as responsive as possible and trying to solicit and close the matter.”