Suggestions for Mitigating Your Tax Audit Risk

Posted By: J. Vincent Perryman on 03/19/2022

It’s tax season which means the news article on what triggers an audit are rolling off the press or in today’s digital world being coded to html.  U.S. News & World Report has released “9 Red Flags That Could Trigger a Tax Audit” while The Wall Street Journal published “10 Red Flags That Could Trigger an IRS Tax Audit in 2022”.  Both are fine articles but lack some basic audit information.

Any discussion of audit risk begins with how and why taxpayers are selected. The first thing to understand is the Internal Revenue Service is underfunded and understaffed. Therefore, the Internal Revenue Service relies heavily on their computer system’s automated statistical formula which checks to see if your reported income and deductions fit into norms for your industry. The formula is developed by the National Research Program conducted by the IRS. The second thing to understand is what positions the Internal Revenue Service is hiring. On March 16, 2020 the Internal Revenue Service released IR-2022-59 announcing it would hire 200 more Information Technologists to aid in upgrading the enforcement systems.  This hiring indicates that the random sample of returns used to develop the statistical formula is growing and the data that triggers an audit will get faster. Especially as they move all returns to e-filing. Faster technology means more audit letters generated by the automated computer system.

Another way that you could be selected for an audit is when you return involves issues or transactions with other taxpayers whose returns were selected for an audit. Some may think that they wouldn’t fall into this category because their return is not tied to another taxpayer, however you may get selected based on the audit of your chosen Tax Preparer. The Internal Revenue Service realized that as an understaffed division of government that enforcement dollars are well spent by going after high volume Tax Preparers who will put anything on a return, so clients get a big refund. When the IRS audits a Tax Preparer, they gain access to their list of returns and flag all of them for audit purposes.

An Internal Revenue Service audit can be a big headache but if you make some wise decisions when filing your federal tax forms an audit is a minor inconvenience.

  1. Keep all your tax documents in one organized folder with a copy of your return.
  2. Make sure you use a reputable Tax Preparer, if you want a referral just call my office.
  3. Make certain that the numbers reported to the IRS on W2s, 1099s, K1s or any other third-party reporting documents are correct and either match the numbers you report on your Federal Tax Return, or the difference is explained on the Federal Return.
  4. Documentation is key especially if you have any of the following on your Federal Tax Return:
    1. Business Losses
    2. Home office deduction
    3. Large Business Expenses
    4. Stock Trades
    5. Cryptocurrency Transactions
    6. Large Charitable Contributions
    7. Earned $200,000 or more
    8. Took the Child Tax Credit
    9. Took the Earned-income Tax Credit
    10. Rental Income
    11. Took Education Tax Credits
    12. Early withdrawals from IRAs or 401(k)s
    13. Health Premium Tax Credit
  5. Finally, if you find yourself facing an Internal Revenue Service Audit seek out the services of a Tax Attorney, CPA, or Enrolled Agent. It always helps to have someone who knows the rules.


J. Vincent Perryman is a Memphis Tax Attorney who has saved Federal Taxpayers across the United States over $2.1 Million in taxes and penalties improperly assessed by Internal Revenue Service.

J. Vincent Perryman, Esq., LL.M.
Law Offices of J. Vincent Perryman
4719 Spottswood Avenue
Memphis, TN 38117
Phone: 901.347.0647