Does Owing Taxes Increase Your Chances of Getting Audited?

Owing taxes to the IRS doesn’t mean that you’ll automatically get audited, but there are some things you should watch out for.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

What counts as an IRS audit?

An audit is when the IRS checks your tax return for accuracy. They might have conflicting information from another source, or you could have just been randomly selected.

Depending on the situation, the IRS may send you a notice saying they’re making changes to your tax return, or they might request more information about specific things on your tax return.

A notice that you owe money to the IRS can follow an audit, but it isn’t an audit. For example, if you file your tax return and don’t pay, the IRS reminder to pay is not an audit.

What makes you more likely to get audited by the IRS?

The IRS keeps the exact ways they figure out who to audit a secret. They don’t want people to game the system.

It’s generally known that they audit people with higher incomes at higher rates because they are more likely to owe more in taxes. They also target deductions and credits that people often claim when they shouldn’t or claim larger amounts than they’re entitled to.

The IRS also compares similar tax returns against each other, especially for businesses. If you claim unusual things for your situation or your numbers are much higher or lower than average, the IRS might take a closer look.

Why isn’t owing money to the IRS an audit factor?

Owing money to the IRS isn’t usually considered an audit factor because it doesn’t need to be. Once the IRS knows your tax return is accurate, it’s very clear whether you owe money or not. What you owe is the taxes on your tax return minus what you paid.

The IRS doesn’t need to do audits to figure out who owes money. Their computer system automatically sends out bills and tells the IRS collections department when human intervention is needed.

When can owing taxes get you audited?

The biggest way that owing taxes can get you audited is when you try to underreport your taxes to try to avoid owing even more. Not everyone has the same chance of being audited, and the IRS computers may be smarter than you think. While people do get away with tax evasion, a lot of other people get caught when their tax returns get flagged due to discrepancies.

Another way owing taxes can get you audited is when you owe large amounts. An IRS employee may spend a longer time reviewing your tax return, and they may be more experienced. That increases the chances of them noticing something the IRS might want to take a look at.

What should you do if you owe money to the IRS?

The first thing you should do if you owe money to the IRS is to check your tax return. You might have missed deductions or credits or accidentally entered the same income twice.

A lot of people are afraid to file an amended tax return because they think they’ll get audited. As long as the changes you made are accurate and you have documentation to support them, an audit is nothing to worry about.

If what you owe is correct and you can’t pay your balance now, you may want to look into requesting a payment plan from the IRS.

What should you do if you get audited?

If you get audited, read the IRS notice carefully. Sometimes, they just want you to send a specific document. You can usually handle that on your own.

If they’re making large changes to what you owe or are reviewing complicated issues on your tax return, you may want to consult with a CPA, Enrolled Agent, or tax lawyer. Your tax return isn’t wrong just because the IRS says it’s wrong. Taxes can be complicated, and sometimes an experienced tax professional knows how to defend your audit and reduce what you owe in ways you wouldn’t figure out on your own.

See IRS Notices and Letters for more information about how to understand and respond to IRS notices. If you need a better accounting system to make sure you’re paying the right amount in taxes and have the information you need to beat a possible IRS audit, check out Tax and Accounting Tools.

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