Red Flags

The Internal Revenue Service is interested in auditing returns which are most likely to produce additional revenue. The Service has developed averages for certain returns which it feels have the best audit potential. Here is a list of some of the items which draw attention to your tax return:

	Participation in tax shelters, including offshore trusts.
	Use of offshore credit cards.
	Your occupation if you are in a business which is often paid in cash, such as taxicab driver, hairdresser, or waitress.
	Businesses run by a single family, especially those reporting on Schedule C, since they often make all the decisions and do their own recordkeeping.
	Returns claiming a home office deduction.
	Big deductions for business travel and entertainment expenses.
	Sloppy tax return preparation.
	Returns which are filed without the necessary supporting tax return schedules.
	Business losses several years in a row.
	Low S corporation shareholder salaries in relation to other distributions.
	A major change in your income compared to your prior tax returns.
	Deductions for automobile expenses.
	Noncash charitable contribution deductions.
	High mortgage interest deduction and low income.
	High damage or theft loss deductions.
	Early withdrawal from an IRA account which is not rolled into a new account or reported on your tax return.
	Deductions for "independent contractors" (versus employees) on business returns.
	Conviction of a money crime where stolen property or stolen money is taxable.

This is only a partial list. There are different red flags for different industries, professions, and income levels. The IRS is constantly changing what it uses as audit indicators.