When Does the IRS Flag Your Return?

An audit by the federal tax authority can cost you time and money.

Understandably, the IRS does not publish a checklist that it uses when determining which returns to audit. Since doing so will help tax evaders avoid an audit, the IRS tries to keep filers and tax prepares guessing. However, tax experts who study observable patterns have come up with a few broad guidelines that could help you lower your chances of getting audited.


The single most important factor that increases the possibility of an audit is your gross annual income. If you make under $200,000 per year, the probability of getting audited is roughly 1 percent. Filers making over $200,000 have around 3 percent chance of being audited or "flagged." If you are making over a million, the probability of an audit doubles yet again, raising to around 6 percent. As the figures demonstrate, there is no specific cutoff above which the IRS will automatically place your return into the "to be audited" pile. Instead, as your income climbs, you face a progressively higher chance of being called for an audit.


Another general rule of thumb is that the larger your itemized deductions, the higher your chances for an audit. Once again, there are no hard and fast rules and no cutoff. However, keep in mind that more itemized deductions mean less taxable income, which in turn means less taxes paid to the federal government. This means that the IRS has an incentive to audit you and uncover any unjustified deductions. If your return has any such items the increase in your tax liability in case of successful prosecution can be substantial.

Past Audits

If your return has been audited in the past and you have been found to have underpaid federal taxes, you are more likely to get an audit in the future. Similarly, if you are a shareholder or partner in a partnership or corporation that has been audited in the past, or has been "flagged" for an audit in the near future based on most recent tax filings, your probability of getting audited for your personal tax return will increase. The idea here is quite simple: The IRS wants to keep an eye on those who have been dishonest or negligent in the past or have an association with a business entity whose tax record is less than stellar.

Complex Transactions

Transactions that appear to have been conducted for the sole purpose of avoiding taxes can easily cause your return to be flagged. Offshore tax shelters, which are often explicit tax avoidance strategies, involvement in numerous and unrelated businesses that allow tax credits or deductions may, and often do, appear suspicious. Again, none of these things is likely to automatically trigger an audit, as even the most complex transactions may have an honest and justifiable reason. Such signs, however, make it likely that the experts at IRS will flag your return and increase the probability of an audit.