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How to Get Audited By the IRS

This article was written by in Taxes. 30 comments.


If you have an adventurous, thrill-seeking personality, your life may never be complete until you’ve solicited an income tax audit from the Internal Revenue Service. There is good news and bad news for you. The good news is that audits have been more frequent in past years, so the chance of being audited has increased. The bad news is that budget cutbacks might force the IRS to reduce audits for the 2010 tax year and beyond, so you might not have the opportunity to provoke an audit unless you try hard. You may not want to leave this up to chance, so here are a few concepts that when applied will tip the scales in your favor.

I would prefer to avoid an audit, but I realize that different taxpayers have different priorities. My strategy is to take the opposite approach of what is recommended throughout this article. Thrill seekers are free to take this article at face value, however.

Even if you follow these ten suggestions, you may still not be audited. The exact formula used by the IRS for picking victims is unclear. But those wishing to invite additional stress are welcome to give these a try and report back with their results.

1. Earn more than $200,000. Taxpayers who report income above this level are 50% more likely to be audited.

2. File a loss on Schedule C. Self-employed individuals are already targets for audits, but if you want to increase your chances, report a net loss year after year. Either your business is losing money or you are finding deductions that bring your taxable income below zero; in both situations, you might invite more scrutiny by the IRS.

3. Be selflessly charitable. The government wants you to give your money to worthy causes, but only to a certain extent. If you claim charitable expense deductions that approach your level of income, the IRS will view your return suspiciously. Donating 10% of your income rarely causes a problem, but donating 90% might raise the red flag you’re looking for.

4. Hire your family members. For taxpayers operating a small business, payments to employees are considered deductions. The IRS pays attention when you hire your family members and write off their salaries as deductions. You may have to prove that your relatives are actually working if you want to survive an audit.

5. File your taxes by hand. Using tax preparation software helps to eliminate some of the basic mathematical and transcription errors that are common in hand-written returns. You may not want to intentionally include miscalculations or the wrong Social Security number, but the chances of doing so are increased when you use paper and a pencil.

6. Open overseas bank accounts. Wealthy individuals often use overseas bank accounts to hide assets and investment income from the United States government. Hiding is more difficult now that the government has successfully pressured certain foreign governments and banks to cooperate. If the IRS finds out about your foreign bank account, you could be audited and required to pay penalties.

7. Receive your income in cash. Consider becoming a professional gambler, waiter, or eBay store proprietor. Working in a job where you receive most of your income in cash is a signal that you have the opportunity to hide income from the government.

8. Round your numbers. If the IRS notices that your income and deductions fall neatly on round numbers like $50,000 or $2,000, you are inviting additional scrutiny. Even if you round in an unfavorable direction from your perspective, the government will be interested.

9. Transfer large amounts from your business savings to your personal savings. Banks must report all deposits over $10,000 to the federal government. They will also report deposits of $5,000 or more if the bank teller or manager has a reason to believe the money is coming from a less than reputable source.

10. Refuse to write off common deductions. If you operate a business, the IRS expects your deductions to look like most business that operate in a similar capacity. For example, certain business owners who do not claim deductions for travel may leave the IRS wondering what else has been left out of the tax return.

I am not condoning lying on your tax return, whether to avoid or to welcome an audit. As I mentioned above, I would prefer to avoid being audited by the IRS, so I will work with my accountant to make sure I have no red flags without detailed substantiation. These suggestions above are only for those who wish to bring difficulty into their lives by inviting the IRS into their homes.

Photo credit: Robert S. Donovan

Published or updated March 11, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 30 comments… read them below or add one }

avatar Patrick

ha! Love it. :) Sometimes the best “how to” articles are the ones that take the opposite approach. I’m still working on my taxes this year, but I work closely with my accountant to avoid as many red flags as possible. As a small business owner though, there are always a few little things that could raise red flags.

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avatar Dustin | Engaged Marriage

It looks like I’m still clear of all of these red flags. I wouldn’t mind getting audited for earning more than $200K sometime soon, though. :)

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avatar Evan

That’s only the case until you pay whatever your pay increase was in the form of CPAs and Attorneys to fight off the IRS lol

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avatar Dan

Flexo,

In regard to #5, I’ve heard differently. Aside from that, I’ve made certain mathematical errors that resulted in the return being sent back to me for correction, not an audit. They are two totally different things.

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avatar steveDH

I’m trying my best to be targeted too! With huge medical deductions that have driven my taxes to zero and a tax credit to boot, I’ll get back more than I paid in. ($3.00 Woohoo). I’m looking forward to it (right!) but I’m guarding my receipts more closely than any other possession I’ve got.

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avatar Jonathan A.

I don’t normally comment on these types of things, however #9 is totally false. You are talking about a Currency Transaction Report or a Suspicious Acivity Report. These are filed by a bank, a casino, etc. if you deposit more than $10,000 IN CASH or less if they think you might be structuing to avoid the trigger. However, this report is for money laundering and has nothing to do with the IRS. The only way the IRS could see transfer from your business savings to personal savings is if they subpoenaed those records and even then it’s hard to tell what’s a business savings vs personal savings.

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avatar lynn ♦155 (Cent)

Not always the case. The IRS counted 10000 as income, even though I took it from a savings account to pay off a vehicle. Who am I to argue. I admit they intimidate me.

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avatar Financial Samurai

What are your thoughts on the discrimination against those who make more than $200,000? If you make more than $200,000 you are paying much more in absolute taxes. Is this the gov’t getting greedy?

Also, can we talk more about the amount of charity donations as a percentage of one’s income? Let’s say I make $1 million/yr…. donating $100,000 sounds like a lot of money, but only 10% of my income. Is that LESS suspicious than someone making only $100,000 a year but donating $20,000 of his income for example?

thnx

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avatar Monevator

This is my favorite first sentence of the year. Genius!

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avatar Angela Nibbs

terrific post flexo! among my favorites.

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avatar RJ Weiss

Wednesday must be opposite day. Got a good laugh out of this one.

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avatar jim

Rounding off cents to the nearest dollar is perfectly acceptable and explicitly documented as OK by the IRS. Rounding numbers is only a problem if you round to very large figures. i.e. lots of figures like $50,000 or $10,000 or $5,000 look suspiciously made up.

I’ve heard that doing taxes by hand is actually less likely to get audited cause its simply more work for the IRS to screen and then audit a hand written return compared to a computerized return. So they end up reviewing and auditing a lower % of hand written returns. I don’t know for sure how true this is but it seems to make sense.

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avatar Eric

lol totally weird yet amusing :)

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avatar sbruce45

I only take a minor issue with # 5. Rather than ‘file your taxes by hand” it would be better to be “prepare your taxes manually”. I could use software to prepare my taxes and then file them by hand. Thus I am then not hit with calculation mistakes. Whether you do it with software or by hand you can always enter a wrong number, like your SSN.

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avatar cubiclegeoff ♦896 (Dime)

I agree with this. I forgot to click one button and my filing was wrong. luckily I found it before I filed.

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avatar Rick

Maybe Joe Stack should’ve read this article before he went into the IRS building – like 20 years ago!

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avatar notofyurbusiness

I’d say, just pay them, give the IRS generously and they’ll stay off your back, they just want your money. If you are gonna pick a fight, pick the mafia, they will just kill you and it’s over. The IRS will destroy your life and that of your kids and their kids…

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avatar Manuel Davis

If you want to go looking for an audit you should do all the things Flexo mentioned above but be sure to leave out a nice big deduction that you could take, so when they do audit you, you can file an amended return and get back more money instead of having to pay them more, always fun to throw it back in the face of the IRS, audits go both ways… which many people fail to realize.

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avatar tbork84 ♦1,867 (Half-Dollar)

It may be fun to do, but is it really wise to poke the bear like that? Having the IRS remember me as “the guy who threw it back in their face” might be one we can add to Flexo’s how to get audited list.

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avatar bob

Cash charitable contributions are limited to 50% of AGI, non-cash are limited to 20-30% of AGI. No one is deductiong 90% in one year.

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avatar skylog ♦368 (Nickel)

great article! i enjoyed the read, even though it does not really apply to me…except for all those funds i have sitting in the caymans. i kid. i kid.

that said, is it really true about #5? i understand the thinking, but statistically?

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avatar Ceecee ♦53 (Newbie)

This is really great information, Thanks!

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avatar nimrodel ♦42 (Newbie)

Woo, not a single one of these apply to me.

I find the idea of an article about how TO get audited amusing :)

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avatar wylerassociate ♦162 (Cent)

good stuff flexo.

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avatar Pat S.

Concur. I’d just as soon not get audited. Not that I have anything to hide.

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avatar Dr. Timothy Lawler

Great article, and I agree with you on the deductions on the business end. However, even if you are doing this on the legit side, you still might get flagged for the business deductions. This is just part of what doing business is all about. Keep up the entertaining posts!

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avatar tigernicole86 ♦55 (Newbie)

Just remember, you’re never too rich or too poor to escape the possibility of an audit.

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avatar 4hendricks ♦248 (Cent)

Please don’t let me be audited, I am not the best bookkeeper.

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avatar Ben

I have a quick question regarding federal taxes. I have an opportunity to purchase 179 depreciation from a solar energy company at a 25% discount of what my actual tax liability would be. Does this trigger any audit flags?

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avatar loserr

I know someone who does not claim all assests they have. They make extra money on bay rentals and have a rental home that not was reported for the lasst 3 years or more.
Now is this illegal not to claim there extra assests or does it have to be a certain amount of money then claim.??
Thank you

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