[U.S. Immigration Collection] Why Am I Being Audited by the IRS?

  After you submit your tax return to the IRS, you may receive a notification from the IRS indicating that your tax return will be audited. You may wonder, why was my tax return selected? Below, we will introduce eight reasons why the IRS may choose to audit your tax return.

 

 1. Mathematical Error Audit Method

 

  This audit method typically identifies issues through computer programs, such as: errors in your name or Social Security number; ineligible households incorrectly applying for low-income family benefits; errors in estimated tax or withholding amounts; incorrect penalties or interest amounts, etc. Sometimes the IRS will schedule a meeting with you regarding these issues, or the IRS may directly send you a tax return they believe is correct along with the corresponding bill, requesting payment. However, even if the IRS sends you a bill, you still have the right to meet with the IRS within 30 days to prove that the amounts on your tax return are correct.

 

 2. Income and Related Document Matching Audit Method

 

  This audit method typically involves comparing your reported tax return with all related tax forms that include names and Social Security numbers, such as your W-2, 1099 forms, K-1, etc. If the IRS finds that you have not reported all income through this comparison, they will select your tax return for audit. The IRS may send you a letter requesting you to call to schedule an interview; or they may directly schedule an interview time for you to attend; they may also send you what they believe to be the correct tax return and the amount of tax owed, requesting you to pay the corresponding tax. Similarly, within 30 days, you still have the right to meet with the IRS to prove that your reported income is correct.

 

 3. DIF Score Audit Method

 

  The IRS has its own scoring system that assigns a DIF score to each tax return; the higher the score, the more likely the return is to be audited. The specific scoring criteria are not disclosed, but from what we know, this scoring system is adjusted each year. For example, taxpayers are more likely to make mistakes on items with significant changes in tax law that year; correspondingly, if you have income or deductions in these areas, your score will be higher. Conversely, in certain areas, such as hiring a professional accountant to file taxes, which reduces the likelihood of errors, your score will be lower. The IRS categorizes and reviews tax returns with high DIF scores and selects which items on the returns need to be audited based on the scores.

 

 4. Correspondence Audit Method

 

  This audit requires you to provide relevant documentation for certain items on your tax return and send them to IRS staff. Commonly requested documents include receipts or proof of payment for deductions. For example, if you made a charitable donation that can be deducted from your taxable income, you will need to provide a copy of the receipt from the charity and a copy of the bank check to prove that the donation amount on your tax return is valid. If you cannot provide the corresponding receipts, the IRS will send you a penalty notice, which will include penalties and interest on the taxes owed.

 

 5. Office Field Audit Method

 

  In recent years, this face-to-face audit method has become increasingly common. Due to pressure from Congress on the IRS, audit rates have significantly increased in recent years. Before the IRS conducts an office audit, taxpayers may first receive a phone call or letter from the IRS requesting them to voluntarily provide the relevant information needed by the IRS. During the IRS field audit, the IRS will focus on checking items on the tax return that may have been underreported. If the results of the audit are not favorable, the likelihood of being required to undergo another audit in the next quarter will increase.

 

 6. Random Selection Method

 

  To improve the speed of audits, the IRS randomly selects some tax returns for examination. This random selection program is named the "National Research Program," following the Taxpayer Compliance Measurement Program (TCMP). This type of audit is considered the most basic and thorough audit method. Every item and every line on the tax return may be subject to review. For example, if you, as a guardian of a child, have enjoyed tax benefits, the IRS will require you to provide the child's birth certificate to prove that this child is your child and that the child lived with you during the tax season.

 

 7. Financial Condition Audit Method

 

  This audit focuses on the taxpayer's living standards and other factors that are not directly related to tax reporting. IRS auditors will use public records and statistical data to track changes in spending and wealth to determine whether the taxpayer has unreported income. The records examined include credit reports, property tax records, business license applications, DMV records, 1099 form data, bank transaction records, and relevant files from the Securities and Exchange Commission (SEC). Due to concerns that the IRS may misuse this information, since 1998, the IRS has been restricted from using this audit method unless there is reasonable evidence indicating that the taxpayer may have unreported income.

 

 8. IRS Special Project Audit Method

 

  Each year, the IRS selects the 12 worst tax fraud cases and uses this list to identify areas for focused audits. Receiving a letter from the IRS is not frightening; simply find an experienced tax representative to handle it, so the client does not have to face the IRS auditor directly.

 

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