The IRS audited about 1 million tax returns in fiscal year 2018, and nearly 75% of those examinations were conducted entirely through correspondence.1 Taxpayers selected for an official audit are notified by mail.
Confusing matters, the IRS also mails other types of compliance notices, which may propose additional tax based on math errors, the automated detection of underreported income, or other factors. The National Taxpayer Advocate calls these notices “unreal” audits, because the IRS doesn’t count them as audits. But their impact is real — so the frequency and effectiveness of IRS compliance contacts are somewhat understated. About 8.5 million taxpayers experienced “unreal” audits during fiscal year 2016, and if they were included the audit rate would jump from 0.7% to more than 6.0%.2Continue reading “Five Red Flags That Raise the Odds of an Audit”