Congratulations! You’ve made it through yet another tax season. By now, you should have either filed your return or an extension. If you did the former, and actually filed your return, a three-year statute of limitations clock has begun to tick. This three-year period is generally the amount of time that the IRS has to examine your return via an audit, though there are some exceptions (such as when fraud is involved, in which case there is no statute of limitations).
Are you likely to hear from the IRS within the typical three-year window? No. In fact, your chances of being audited are pretty darn low. In 2016, the audit rate was less than 1% for the “average” taxpayer. Even those with higher incomes, where audits are more common, are unlikely to have their returns scrutinized by the IRS. In 2016, those with $200,000 or more of income were still audited less than 2% of the time. Even those at the very top of the income spectrum, with more than $10,000,000 of income, were more than four times more likely not to be audited than to be audited.
While the audit rates across the board are extraordinarily low, there are some ways your return can attract the attention of the IRS and disproportionately increase your chances of being audited. One way to increase your odds of an audit, for example, is to have deductions that are not in line with those reported by similar taxpayers. Believe it or not, the IRS has computer systems that can spot these things and if the deductions you’re claiming are too far removed from the “norm,” your return could make its way to the top of the audit pile. Other red flags include large auto expense deductions and large deductions for home offices (especially if using the non-safe-harbor method). Perhaps the biggest red flag of all is to report something to the IRS that’s different from what they’ve seen elsewhere. In fact, more than two-thirds of audits are triggered in full or in part based on the information reported on your return not matching up with what the IRS has receive from “other sources.”
While all of these mostly well-known red flags will increase your chances of an audit, in virtually all scenarios, you’d still be less likely to be audited than to face the IRS’ scrutiny. What if, however, you live for the thrill of IRS scrutiny and the idea of an audit gets your excited? What if you want the challenge of standing up to the IRS and defending your return?
Well, for starters, you should really think about finding a hobby because you clearly have too much time on your hands. But having said that; yes, there is something that you can do to guarantee yourself an audit. All you have to do is become the President of the United States of America or the Vice President, but why not dream big?
Each year, the President and the Vice President’s returns go through a mandatory audit process. These audits are generally fast-tracked, but it’s probably safe to say that our current President’s returns will be more complicated than most, if not all of his recent predecessors. So just how long that process will take is somewhat of an open question.
There are actually a whole series of rules surrounding this process, covering everything from how quickly the returns must be assigned for audit to what color folder the returns must be kept in while being reviewed. It’s orange by the way, and if you don’t believe me, you can see so for yourself here.
And if you’re wondering if the President and Vice President are the only people that receive a mandatory audit, the answer is no. As a rule, IRS employees must also have their returns examined annually. So I guess if you’re really hankering for that audit and the whole President/Vice President thing doesn’t work out for you, there’s always that…