In this article, you can discover…
- Whether only high-income earners are audited by the IRS.
- If your older tax returns are in danger of being audited.
- Whether an IRS audit of your tax return will lead to criminal charges.
Myth # 1 : Only High-Income Earners Get Audited
This is a very common misconception. While high-income earners do face a slightly higher likelihood of being audited, IRS audits can and do affect middle- and lower-income taxpayers as well. In fact, one area that sees frequent audit activity is the Earned Income Tax Credit (EITC). This is typically claimed by low- to middle-income taxpayers. Since there’s a high rate of error and fraud associated with it, this credit is often scrutinized and a frequent audit trigger.
Ultimately, it’s not just about income. The content of your tax return. Missing or incorrect 1099s, unreported income, or questionable deductions are all things that prompt an audit. A taxpayer making $40,000 with missing income forms may be more likely to get audited than someone making six figures with a clean return.
Myth # 2 : Simple Math Errors On A Tax Return Automatically Trigger An IRS Audit
Simple math errors don’t usually result in a full audit. Instead, the IRS will often send a notice of adjustment to correct the issue without escalating it. However, errors combined with other red flags, such as mismatched income documents or excessive deductions, can lead to further scrutiny.
In short, a math mistake alone won’t get you audited, but it can catch the IRS’s attention.
Myth # 3 : The IRS Frequently Audits Tax Returns Older Than Three Years
Generally, the IRS has a three-year statute of limitations for auditing a tax return. But there are several exceptions:
- Six-Year Rule: If you underreport more than 25% of your income, the IRS can audit returns up to six years old.
- No Statute For Fraud Or Unfiled Returns: If the IRS suspects fraud or if you never filed a return, they can go back indefinitely.
- Extension Requests: The IRS may ask you to voluntarily extend the audit period, especially if an audit is ongoing and the normal statute is about to expire. If you agree to an extension, limit it to specific issues or tax years to prevent the IRS from opening new areas unnecessarily.
John Ecton, founder of Ecton Law Firm, PA has dedicated his career to helping individuals and small business owners throughout the Carolinas navigate the complexities of IRS audits with confidence and clarity.
Drawing on years of experience representing clients across income levels, John Ecton understands how misconceptions about audit triggers can lead to costly mistakes. His team has successfully guided countless taxpayers through IRS scrutiny, from routine correspondence to high-stakes investigations.
If you’re facing an audit or want to better protect yourself, contact Ecton Law Firm, PA today for trusted, experienced help.
Myth # 4 : Self-Employed Individuals Are Audited At The Same Rate As Traditional W-2 Employees
Self-employed individuals typically face a higher risk of being audited than traditional W-2 employees—and for good reason. Their tax returns tend to include a wider range of deductions and expenses, such as business-related mileage, home office use, and equipment costs. In addition, self-employed taxpayers are more likely to earn at least some income in cash, which increases the potential for underreporting, whether intentional or not.
These additional layers give the IRS more to review and more opportunities to spot inconsistencies or red flags. It’s important to note that overall audit rates remain relatively low, so those who are self-employed should be especially careful to maintain detailed, accurate records. Staying organized and transparent can go a long way in avoiding unnecessary scrutiny and ensuring a smooth tax filing experience.
Myth # 5 : An IRS Audit Will Automatically Lead To Criminal Charges
In most cases, no. Audits are civil proceedings, not criminal investigations. However, if the auditor discovers intentional fraud or the taxpayer makes false statements, the matter can be referred to the IRS Criminal Investigation Division.
For example, in one case, a taxpayer, let’s say an HVAC contractor, claimed he had only one bank account and never cashed customer checks. The auditor already had evidence to the contrary, including proof of seven bank accounts and regular check cashing. That misrepresentation led to a criminal referral.
A word of warning for taxpayers:
- Always tell the truth
- Never offer more information than asked
- Consult a professional before speaking to an auditor
What’s The Most Damaging Myth About IRS Audits That Hurt Everyday People?
Several myths can hurt taxpayers, but the most damaging may include:
An audit means I’m going to jail.
This isn’t true. The vast majority of audits remain in the civil arena, focusing on reconciling financial discrepancies, not criminal prosecution.
If I claim a legitimate deduction, I’ll get flagged.
Many taxpayers avoid claiming deductions that they’re entitled to, like a home office, for example, out of fear. If you’re following the rules and can document your claim, you shouldn’t shy away from taking it.
An audit always means I’ll owe more money.
Not necessarily. Audits can end in a no-change result, where everything checks out. In some cases, auditors even discover missed deductions or credits, resulting in a refund.
Still Have Questions? Ready To Get Started?
For more information on IRS audit myths, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling South Carolina (803) 797-4600 | North Carolina (704) 741-8684 today.
