Why Was I Selected for an IRS Audit?

Experienced San Diego IRS Audit Lawyers

There are many reasons why US taxpayers and businesses are selected for an IRS audit. In some cases, it may be as simple as making a substantial income.  In other cases, the IRS has determined that a specific activity or set of facts points to a group with a substantial opportunity for the IRS to audit and recover large sums for the US Treasury.  The specific algorithm for the IRS audit selection criteria is a closely guarded secret.  There are trends that develop over time, and each year the agency communicates areas of focus for potential audits.

The IRS itself is careful to note that audits are often not due to errors in the mathematical calculations contained in the return itself.  Some audits are randomly generated, and the returns are analyzed by an IRS revenue officer for potential anomalies and the likelihood of an increased tax revenue opportunity.  “Document Matching” is another source of potential audit candidates.  When an employer or payor provides the IRS with a copy of your W-2 or a 1099, and the information contained in that document doesn’t match up with your returns, an audit may be likely.  In some cases, your return may be selected for audit based upon discrepancies found in associated returns such as your partners in an LLC or business associates.

Bell Curve Audit Algorithms

When the data for any pattern, deduction or IRS form is analyzed the information for all taxpayers who utilized the item are plotted, and a “bell curve” develops. The bell curve is a standardized statistical model which establishes a curve based upon the numerical values and the number of data points used in the analysis.  The bell curve creates a large central group that is considered the “norm” for the data at hand, and identifies those who fall outside of that statistical norm and targets them for a deeper review or audit.

For example, if the average charitable donation for all returns was 3.45% the bell curve would identify those that fall outside of the statistical norm, and target those who have claimed an amount that is outside of the normal range for further investigation or audit. The IRS might establish an algorithm that identifies all taxpayers who claimed an amount greater than 4.3% and pursue those returns for potential audits.

What Should You Do If You are Selected for an IRS Audit?

If the IRS sends you a notification of an intent to audit you or your business, you should not contact them directly. IRS revenue officers and agents are highly skilled and trained to obtain additional information you are not required to provide.  It is never in your interest to attempt to survive an audit on your own, and Allen Barron has developed an 8 page guide entitled “What to Expect From an IRS Audit.”  It is free for you to download, and is full of useful information about the risks to US taxpayers in an audit, the process of the audit itself, appeals and your options along the way.

Allen Barron’s seasoned IRS audit attorneys provide sound counsel, and extend the protections of the attorney-client privilege. We work to ensure that the scope of the audit remains limited, and keep your potential exposure to an absolute minimum.  The extensive accounting and tax preparation services available through Allen Barron eliminate the need for multiple professionals, reducing costs and ensuring that your information is protected.

Contact San Diego IRS Audit Attorneys

If you are facing a California taxing agency or IRS audit, it is important that you fully understand the nature of your exposure and the options available to you. The attorney-client privilege is a valuable protection and one should never face the IRS or another tax agency without it. Call us for a free consultation at 866-631-3470 or contact our office to schedule an appointment to meet in person. We will discuss your concerns, the challenges you face, and the value that attorney-client privilege can bring to your case.