Sam Brotman, JD, LLM, MBA September 29, 2013 10 min read

IRS Audit Red Flags – Part Two – Common Errors

Continued from IRS Audit Red Flags – Part One – Why IRS Audits Occur

In our last section, I gave an overview of what audits are and how returns get audited. In this section, I will begin discussing IRS audit red flags by talking about the most common errors and other things to avoid in order to reduce your chances of an IRS audit.


This is an easy one. If there are mistakes made on the return, it suggests that the taxpayer did not spend proper diligence and care in preparing their return. Mistakes on a tax returns mean that things need to be changed and those changes may mean an increase in tax owed to the government. Plus, some mistakes cause the return to get kicked out of the electronic processing system and rerouted somewhere else. That generally requires a human to fix it.

So what types of mistakes are we talking about? You name it. Wrong name, wrong social security number, incomplete/missing information, incorrect math, conflicting entries on a return, tax return does not match other information that was filed with the IRS, and so on and so forth. Tax returns are semi-sophisticated financial documents and, as such, there is generally a high potential for error.

Amended returns fall in the same category of “mistakes” that will probably generate closer scrutiny by the IRS. Filing an amended return, particularly if it results in a significant decrease in tax, is almost guaranteed to get a second look by the IRS. It may not mean that your return will be selected for audit, but most likely someone will take a second look to make sure that the return was done properly. One final word about mistakes is that it is very important to make sure the information in your federal and any state tax returns matches up. The IRS and the state income tax agencies can and do share information regarding tax returns that are filed. A mistake in that arena could potentially mean that both agencies come knocking on your door

“0’s” and repeated end numbers

Mistakes are indicative of a lack of care when preparing the return. Zeros, especially double or triple zero, indicate that the tax preparer guessed regarding an expense category or are BSing. I have seen IRS revenue agents (auditors) roll their eyes when they see complicated expense categories come out to a nice even number. Often times, they just know that the taxpayer is not going to be able to substantiate that category fully. In the same regard, guessing and using the same end number over and over again may also raise a red flag with the IRS. I would never advise someone to guess on a tax return, but if you are truly stumped and need to make your most honest recollection about an expense category then you might want to vary those guesses to avoid scrutiny.

You have been audited before

There is some debate about this among practitioners. Some people claim that getting audited once and having that audit result in a change opens up the door to future scrutiny down the road to the IRS. However, others claim that once a person has been audited, the Service turns their attention to other taxpayers to widen the number of people they are able to examine. I find fault with both of these rationales and, though I have never had an audit client get audited twice by the IRS (knock on wood), I do not find it hard to believe that some variation of this information may make its way into your DIF or UIDIF score. While this certainly is not a major factor or audit red flag, it is a good reminder for those who have been audited to make sure their I’s are dotted and their T’s are crossed when it comes to their return.

You use an unscrupulous tax preparer

In contrast, I cannot say enough about the dangers of using someone who fudges numbers on your tax return, who is overly aggressive, or who may just be an all out crook. The IRS Criminal Investigation Division (CID) has been increasingly going after unscrupulous return preparers as a way of ushering compliance from the rest of the community. Think about it: your preparer may magically turn a $300 balance into a $300 refund, but if he is doing it for you than he is probably doing it for everyone. Tax Preparers use an identification number known as a PTIN, so that the IRS can readily and easily identify all the returns that individuals prepare. The IRS has a number of ways that it discovers crooked preparers. Someone may rat them out to the IRS, usually a former client or former spouse. One of their clients may be audited and the IRS may take a second look at some of the other returns that they have prepared if the audit resulted in extensive changes. Probably not too far off, if it does not already exist at the IRS, is a method to statistically look for patterns in the returns that a person has prepared. Regardless of how they are caught, you do not want to be anywhere near that person when they are caught. Tax preparers have been a high priority target of the IRS for many years now (google tax preparer and sentenced to see what I mean). You should absolutely do everything in your power to avoid them, especially if they do not sign the tax returns that they prepare or indicate that the return was self-prepared.

Continue to IRS Audit Red Flags – Part Three – Frequent IRS Targets 

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Article Index

IRS Audit Red Flags – Part One – Why IRS Audits Occur

IRS Audit Red Flags – Part Two – Common Errors

IRS Audit Red Flags – Part Three – Frequent IRS Targets

IRS Audit Red Flags – Part Four – Cash

IRS Audit Red Flags – Part Five – Schedule A and E

IRS Audit Red Flags – Part Six – Employee Audit Red Flags

IRS Audit Red Flags – Part Seven – Schedule C Expenses

IRS Audit Red Flags – Part Eight – Schedule C Losses and Schedule B and D

IRS Audit Red Flags – Part Nine – Margins

IRS Audit Red Flags – Part Ten – The Self Employed/Conclusion

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