Suspicious IRS Audit Items

1) Misreporting Income

Taxpayers must always make sure the income on Form W-2 and Form 1099 match the reported income on their return. Every so often, a 1099 is missing in the mail or a W2 may not be accurate.

2) Unusually High Charitable Deductions

Taxpayers may raise some eyebrows if charitable donations are well above average for their income range. It is wise to have reasonable submissions that have average valuations for the type of donation being made.

3) Unusually Low Salaries

The IRS takes a close look at S corporation compensation practices, particularly if the salary paid to a principal owner looks suspiciously low.

4) Wrong Social Security Number

Taxpayers must make sure to clearly write or carefully type their Social Security number to avoid added scrutiny over hand-filed returns, or the rejection of e-filed returns.

5) Claiming Losses from “Hobby” Activities

Certain types of businesses showing losses, such as horse racing or horse breeding, will often generate increased attention. Continued losses for a business entity can also be a red flag, as the loss claimed may offset income from another source.

6) Ex-spouses Claiming Different Amounts for Alimony Deduction or Income

Taxpayers must report the Social Security number of their ex-spouse when reporting their alimony deduction. It should not differ from the amount the other ex-spouse claims for the corresponding item. Open communication between both former spouses is wise when it comes to reporting figures to the IRS.

7) Large Amounts for Meals and Entertainment Expenses

Sizable meals and entertainment expenses for a taxpayer’s business are common targets. This is where receipts and a careful detailing as to who was treated for a meal or movie is essential should an audit occur.

Sources: Tax Foundation, IRS