Updated September 2025.
Do you cringe every time you receive correspondence from the IRS, in fear that the letter contains news of an audit? If so, you are not alone. However, these fears are largely unfounded.
Let’s take a look at the facts. In 2024, the IRS audited just 0.19% of all returns, equating to roughly two in every thousand. The previous year saw a slightly higher rate, at 0.22%, but that’s still strikingly low.
Only a small portion of US taxpayers are audited each year, and most of those are chosen because of specific characteristics or red flags on their returns. Understanding the common IRS audit triggers could help you lower your risk factor.
Key Takeaways:
- The IRS uses two main methods to select tax returns for audits: random sampling and computerized screening.
- High-income taxpayers are audited more often, with those earning over $10M most likely to be audited by the IRS.
- Sudden spikes or drops in income may be seen as suspicious and lead to an audit risk for taxpayers. The IRS uses a scoring method to detect discrepancies.
- Claiming niche or high-risk tax credits without full documentation or eligibility may trigger an audit.
- Keeping detailed and accurate records is one of the most effective ways to survive an audit if you are selected.
How Does the IRS Choose Returns to Audit?
The IRS has two methods for choosing taxpayers for audit. These are:
- Random – as part of its National Research Program, the IRS randomly selects thousands of returns each year for examination. The agency founded the program in 2017 in an effort to track filing compliance overall.
- Computerized screening techniques – through this process, the IRS compares returns against national norms. These are commonly referred to as red flags because returns outside the norm are often flagged for audit.
As part of its computerized screening process, the IRS also compares income reported on tax returns to details reported by third parties. When discrepancies are found, the agency may adjust your return and send you a CP2000 notice, or they may initiate an audit.
Common IRS Audit Triggers, Explained
The IRS has many red flags for identifying taxpayers to audit. These items represent areas where the IRS has found individuals to be less compliant than in other areas. If you include one of these items on your return, be sure you report accurate figures and have sufficient backup, such as receipts, to justify your reporting.
Here’s a rundown of the main IRS audit triggers:
-
- Having an extremely high income – taxpayers with over $10 million in income have a much higher audit rate than other taxpayers.
- Not reporting any income – taxpayers who report no income are also audited at higher-than-usual rates.
- Reporting unusual earnings year on year – the IRS may flag returns that show dramatic changes in income from year to year.
- Unreported foreign income and cryptocurrency – if the IRS receives info from a foreign bank or a crypto platform indicating that you haven’t reported your accounts or taxable transactions, they may audit you.
- Reporting large charitable donations – in particular, if the charitable donations are very high compared to your income or if you’re reporting certain types of listed transactions without the right attachments, you face a heightened audit risk.
- Cash-heavy businesses – the IRS knows which industries receive a lot of cash payments, and you may be audited if you only report the credit card payments shown on your 1099-K as your total business revenue.
- Frequent losses – losses every year may cause the IRS to flag your return for an audit, and the agency may want you to prove that you’re really running a business, or you’ll be subject to the hobby-loss rules.
- Claiming for any niche or high-risk tax credits – The IRS looks at many types of tax credits very closely.
However, in some cases, an accurate return may contain a red flag, and to protect yourself, you need to keep supporting documents and respond promptly to any requests from the IRS.
How to Reduce Your Audit Risk
Now, let’s look at each of those audit triggers, explain what the IRS looks at, and explore tips to reduce your audit risk.
Extremely High Income
Let’s start with a simple equation: the more income you report, the greater your chance of being audited.
In 2024, the IRS audited 3.1% of returns where taxpayers reported income between $5 million and $10 million, and 7.9% of returns with $10 million or more in revenue. These numbers reflect the IRS’s focus on high earners.
How to reduce your risk:
- Ensure all K-1s and additional income documents are complete.
- Make sure that they also match any third-party reporting.
- Keep clear records of any investment income, deductions, or other transactions.
Unusual Earnings
Similarly, unusual spikes or drops in your earnings could be a tax audit trigger. The IRS uses the Unreported Income Discriminant Index Function (UIDIF) score to determine how likely your return is to have discrepancies or errors. If there’s a sudden change from one year to the next, that will increase your chances of an audit.
The IRS also receives copies of your 1099s and W-2s. The agency compares income from your return to the numbers reported on these forms. If you have failed to report something, the IRS might flag your return for audit.
How to reduce your risk:
- Check you’ve included all the W-2s, 1099s, and other forms in your return.
- Keep consistent records of business activity to explain income shifts.
- File final business tax returns if you close down your business – as no longer operating may lead to shifts in income.
Unreported Foreign Income and Cryptocurrency
Foreign investments have traditionally been a way for wealthy taxpayers to hide assets and income. Because of this, the IRS pays particularly close attention to ensure that all foreign income is correctly reported and that taxpayers use the appropriate forms to report foreign assets.
If the balance in all your foreign accounts goes above $10,000, you must report this to the IRS. Failing to do so is one of the main audit triggers for the IRS.
Cryptocurrency is also on the IRS’s “dirty dozen” list of tax scams. Beginning with 2019 returns, taxpayers were asked to note on their 1040 if they held or engaged in cryptocurrency transactions. The IRS is looking for underreported or unreported income.
How to reduce your risk:
- Always file an FBAR if your foreign accounts total more than $10,000.
- Never skip the crypto question on the Form 1040, even if you held and didn’t trade.
- Keep clear records of wallet addresses, transactions, and exchange reports.
Large Charitable Contributions
Taxpayers can claim certain deductions for charitable contributions, so long as they itemize the deductions on their tax return. However, how much you claim for these deductions must logically correspond with your reported income.
Although you’re allowed to claim a charitable deduction worth up to half of your adjusted gross income (limited to 20 or 30% in some cases), the IRS may take a second look if you’ve donated so much that you’ve left yourself very little to live on. If the reported charity contribution is outlandish when compared to your income, it could be an audit trigger for the IRS.
How to reduce your risk:
- Keep written acknowledgements and documents from the charities you donate to.
- If you make non-cash donations over $500, file a Form 8283 with your tax return.
- Never round donations up or down; instead, use exact figures.
Cash-Heavy Businesses and Frequent Losses
If you’re operating a primarily cash-run business, such as a hair salon or restaurant, it is an instant flag for the IRS. That’s because of the potential for underreporting income.
Additionally, if you consistently report business losses, the IRS may examine your return to determine if you are truly running a business or trying to claim your hobby as a business. Your return is most likely to be flagged if your business has not shown a profit in three of the last five years (five out of seven for farming businesses).
How to reduce your risk:
- Be sure to keep accurate daily records of all cash income and any deposits.
- Have a separate business and personal bank account, and the documents to prove it.
- Make sure your business meets the IRS’s criteria for for-profit activity.
Niche or High-Risk Tax Credits
Some tax credits, such as clean energy-related tax credits, are more likely than other tax credits to be incorrectly claimed or misused. This is one of the main IRS audit triggers you must watch out for.
How to reduce your risk:
- Read the eligibility rules for each credit and only claim if you’re fully qualified.
- Keep a record of all supporting documents—for example, receipts and certificates.
- Check whether the tax credit requires IRS pre-approval or registration.
Quick Steps to Minimize IRS Tax Audit Risk
If you’re concerned about your risk of being audited, there are some simple steps you can take. We’ve broken down your options based on each tax audit trigger below:
| Tax Audit Trigger | Steps to Reduce Your Risk |
|---|---|
| Extremely High Income |
|
| Unusual Earnings |
|
| Unreported Foreign Income and Cryptocurrency |
|
| Large Charitable Contributions |
|
| Cash-Heavy Businesses and Frequent Losses |
|
| Niche or High-Risk Tax Credits |
|
What Triggers IRS Audit FAQs
How does the IRS select returns for audit?
The IRS selects returns randomly as part of the National Research Program. The agency also uses computerized screening programs to detect unusual patterns or discrepancies.
Who’s most at risk of a tax audit?
High-earners, self-employed professionals, and those with large deductions are most likely to be audited. If you trigger any of the audit red flags in this guide, it may increase your chances.
How far back can the IRS audit?
The IRS can usually audit up to three years in the past. However, if the agency sees substantial underreported income, it may add subsequent years.
Does getting a refund increase audit risk?
No, getting a refund does not mean that you are more at risk of an IRS tax audit. However, if the way you gained the refund was suspicious, it may be a factor.
Do self-employed individuals get audited more?
Yes. Since self-employed professionals can report income and deductions without verifying them with a third party, they are more likely to misreport. This increases the chance of auditing.
Have Questions? Call the Experienced Tax Attorneys at Wiggam Law
If you’ve been selected for an IRS audit, we can help you respond to document requests and deal with the auditor. We can also help you appeal and deal with audit penalties if you’re at that stage of the process.
The experienced attorneys at Wiggam Law can evaluate your situation, recommend a course of action, and represent you during the audit process. Contact metro Atlanta’s top tax attorneys by clicking here or giving us a call at (404) 233-9800.