The Internal Revenue Service uses a combination of automated and human processes when selecting which tax returns to audit. All tax returns are compared with statistical norms, and those with anomalies undergo three layers of review by personnel.
Audits then occur either by mail or in meetings at taxpayers’ places of business. They can be unpleasant and are sometimes unavoidable. Donald Duncan, founder of Chicago-based D3 Financial Counselors, says certain red flags are sure to draw scrutiny. Some are easy to sidestep – unreported income, for example. Others, such as high income, can’t be helped.