The IRS audited approximately 0.4% of individual income tax returns in fiscal year 2024 -- less than 1 in 200. The risk is low overall, but it is not evenly distributed. Certain income levels, deduction patterns, and filing characteristics significantly increase the probability of a closer look.
How the IRS Selects Returns
- DIF score: Every return receives a computer-generated score based on what deductions and income patterns look unusual for a given income level. High scores flag returns for human review.
- Document matching: The IRS matches income on your return against 1099s and W-2s filed by payers. Discrepancies trigger automatic CP2000 notices.
- Related examinations: If someone who paid you is audited, the IRS may examine your return as a related party.
Common Audit Triggers
Large Deductions Relative to Income
The IRS knows what charitable contributions and business expenses look like for a given income level. A $40,000 charitable deduction on a $60,000 income return will score high. Document all deductions thoroughly.
Schedule C Losses -- Especially Repeated Losses
Self-employment income on Schedule C draws disproportionate attention because it is self-reported. Businesses showing losses year after year may be reclassified as hobbies. The IRS looks for a profit in at least 3 of the last 5 years as an indicator of profit motive.
Home Office Deduction
Legitimate for genuine home-based businesses, but the IRS requires exclusive and regular use of the space for business. Document the square footage and the exclusive business use.
Cryptocurrency Transactions
The IRS now requires all taxpayers to answer a digital asset question on the front page of Form 1040. Exchanges file 1099-DAs with the IRS. Underreporting crypto gains is a specific enforcement priority.
Mismatched Information Returns
The most common cause of IRS notices: a 1099 is filed with the IRS but not reported on your return. Always verify that every 1099 you received is accounted for on your return.
How to Protect Yourself
- Keep receipts and records for at least 3 years (6 years if you substantially underreported income)
- For mileage, keep a contemporaneous log with date, destination, business purpose, and miles
- For charitable contributions over $250, obtain a written acknowledgment from the organization
- Report all income -- including cash, crypto, and side gig income
Source
IRS Data Book FY2024; IRS Publication 556 (Examination of Returns, Appeal Rights, and Claims for Refund).