The IRS audited more than 500K returns, and yours could be next

The IRS processed roughly 266 million tax returns during fiscal year 2024, and not every one of those returns passed through the system cleanly.

More than half a million were pulled aside for a closer look, resulting in billions of dollars in recommended additional taxes owed to Uncle Sam. If you filed a return recently, you are probably wondering right now whether yours could land on the wrong side of that selection process.

Your odds are low on paper, but certain red flags on your return could change those odds faster than you realize right now. The real question you should be asking yourself is not whether audits happen, but whether your return has the kind of profile that attracts one.

Here is what the latest IRS data reveal about who gets audited, what triggers that scrutiny, and exactly how you should prepare yourself.

How the IRS decides which returns get flagged

The IRS does not select most returns at random, and the agency has become far more sophisticated about identifying which ones deserve scrutiny. Every return you file gets scored by the Discriminant Function System (DIF), a computerized scoring model that compares your return against statistical norms for your income bracket.

Returns that deviate significantly from what the IRS expects for someone in your income range, occupation, and location get higher DIF scores automatically. The algorithm also cross-references your reported income against third-party documents including W-2s, 1099s, and K-1s filed by employers and financial institutions.

A Government Accountability Office report confirmed that the IRS is increasingly using machine learning models to identify returns with the highest likelihood of containing errors. But a human IRS employee still reviews your return and makes the final decision about whether to move forward with a full examination.

Audit rates vary significantly depending on your income level

Out of the 266 million returns the IRS processed, only 505,514 were audited in fiscal year 2024, according to the IRS Data Book. That works out to roughly 0.19% of all returns filed, or fewer than two out of every one thousand returns submitted to the agency.

But that average hides enormous variation once you break the numbers down by income, and some taxpayers face dramatically higher audit rates. Taxpayers reporting total positive income of $10 million or more faced an 11% audit rate for tax year 2019, the most recent year fully measured.

Related: IRS issues harsh warning about AI and taxes

Audit rates by income bracket (IRS fiscal year 2024):Under $25,000: Approximately three to four audits per 1,000 returns filed, driven largely by Earned Income Tax Credit claims$25,000 to $49,999: Approximately two audits per 1,000 returns filed, one of the lowest audit rates across all income brackets$50,000 to $499,999: Approximately one audit per 1,000 returns filed, the lowest overall examination rate for individual taxpayers nationwide$500,000 to $999,999: Approximately six audits per 1,000 returns, a noticeable jump from the rates faced by middle-income filers$1 million to $5 million: Approximately 11 audits per 1,000 returns, reflecting the IRS enforcement priority on high-income earners directly$5 million to $10 million: A 3.1% audit rate, or 31 audits per 1,000 returns filed, according to the latest IRS data$10 million and above: An 11% examination rate, the highest audit coverage among all individual income categories tracked by the agency

The IRS has committed to not raising audit rates above historical levels for taxpayers earning under $400,000 annually under current enforcement guidelines.

However, Congressional budget proposals and IRS workforce reductions may further shift how the agency allocates its limited enforcement resources going forward.

5 red flags that could draw the IRS directly to your return

The IRS does not publish an official list of audit triggers, but tax professionals and IRS data consistently point to the same recurring patterns.

You should understand each of these red flags because even one of them on your return can significantly increase your chances of being selected.

Red flag #1: Unreported income or mismatched third-party documents

Every W-2, 1099-NEC, 1099-K, and 1099-B filed by employers, brokers, and payment platforms gets matched against the income you report on your return. If the IRS system detects a discrepancy between what third parties reported and what you claimed, your return gets flagged automatically for review.

Red flag #2: Deductions that are disproportionately large relative to income

Claiming $30,000 in charitable deductions on $75,000 of income will almost certainly attract IRS attention because that ratio falls far outside statistical norms. The DIF scoring system compares your deductions against averages for taxpayers with similar incomes, and significant deviations raise your score immediately.

Red flag #3; Repeated Schedule C losses from self-employment activity

If your business consistently generates losses that offset your W-2 income year after year, the IRS may question whether you operate a real business. The agency could reclassify your activity as a hobby, which eliminates your ability to deduct those losses against your other earned income entirely.

Red flag #4: Excessive home office deductions without proper documentation

David Perez, an IRS enrolled agent and CEO of Tax Maverick, told U.S. News that many taxpayers overestimate this deduction and claim far too much. 

Your home office must be used exclusively and regularly for business purposes, and the IRS has specific square footage and usage rules you must follow.

Red flag #5: Unreported cryptocurrency and digital asset transactions

Starting with 2025 transactions, crypto brokers must report proceeds to the IRS on the new Form 1099-DA, dramatically increasing the agency’s visibility.

If you sold, traded, or received digital assets as income and failed to report those transactions accurately, the IRS matching system will catch it.

Cryptocurrency transactions are now easier for the IRS to track, making accurate reporting more important than ever before for taxpayers.

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What happens when you receive an IRS audit letter?

If the IRS selects your return for examination, you will find out through a physical letter delivered by the United States Postal Service to your address. You will never receive a phone call, email, or text message from the IRS about an audit, and anyone who contacts you that way is likely a scammer.

You can verify any letter you receive by checking the IRS notice lookup page using the CP or LTR number printed on the upper right corner of the document you received.

Most audits are handled entirely through the mail

In fiscal year 2024, 77.9% of all IRS audits were correspondence audits conducted entirely by mail, according to the IRS Data Book (Publication 55-B).

These mail-based audits typically ask you to provide additional documentation supporting specific items on your return, such as deductions or income amounts.

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The remaining 22.1% of audits were conducted in person, either at an IRS office, your tax professional’s office, or at your home or business.

You have the right to request an in-person audit if the complexity of your situation makes a mail-based review impractical for your circumstances.

How to prepare yourself if the IRS selects your return

The IRS will tell you exactly what documents it needs to conduct your audit, so you will not be left guessing about what to gather together.

Your audit letter will include a specific list of records the agency wants to review, and you should start assembling those documents immediately.

Related: The IRS Says Tax Refunds are Up 10%

Records you should have ready:

Receipts for any deductions you claimed, with notes explaining what each expense was for and how it relates to your returnW-2s, 1099s, and K-1s from employers, brokers, and partnerships that document all income sources you reported on your filed returnBank statements and canceled checks that show the dates, amounts, and recipients of payments you deducted from your taxable incomeMileage logs, travel records, and business expense documentation organized by trip, date, and clearly stated business purpose for each itemLegal documents, loan agreements, and property records that support any claims related to interest deductions or real estate transactions reported

The IRS recommends organizing your documents by year and transaction type and including a summary page listing everything you are submitting. Do not send original documents by mail under any circumstances, and always request delivery confirmation to prove the IRS received your package.

Consider hiring a tax professional for representation

You have the legal right to represent yourself during an IRS audit, but a qualified tax professional can often navigate the process more efficiently. Enrolled agents, certified public accountants, and tax attorneys are all authorized to represent you before the IRS during an audit examination proceeding.

Three realistic outcomes after the IRS completes your audit

After the IRS finishes reviewing your documents, the agency will send you a letter with a report explaining the findings and any proposed changes. Your audit will end in one of three ways, and each outcome requires a different response from you depending on whether you agree with the results.

No change to your return: The IRS found that everything you reported was accurate and properly supported by documentation, and your case is closed with no adjustments.You agree with the proposed changes: The IRS identified adjustments to your return, and you understand and accept them, so you follow the payment or refund instructions included.You disagree with the proposed changes: You can request a conference with an IRS manager or file a formal appeal through the IRS Alternative Dispute Resolution program within 30 days.

Ignoring an audit letter does not make the process go away, and the IRS will simply complete the audit using whatever information it already has.

That almost always results in changes that are less favorable to you, because the agency will not give you the benefit of the doubt without documentation.

Steps you can take now to reduce your tax audit risk

You cannot eliminate audit risk entirely, but you can take specific practical steps that significantly reduce the likelihood that your return will be selected. The best defense against an IRS audit starts long before you file, and it begins with accurate record-keeping throughout the entire calendar year.

Report every source of income accurately, including freelance payments, side hustles, investment gains, and any income from digital asset transactions reported.Keep all receipts, invoices, and bank statements that support your deductions, and organize them by category so they are ready if needed.Avoid using suspiciously round numbers for deductions, because claiming exactly $10,000 or $15,000 in expenses raises red flags in the DIF scoring system.File your return electronically with direct deposit, which reduces processing errors and provides faster confirmation that the IRS received your filing.Reconcile all third-party income documents against your return before filing, and make sure every W-2, 1099, and K-1 matches what you reported.Consult a qualified tax professional if your return involves self-employment income, rental properties, foreign accounts, or large itemized deduction claims seriously.

The IRS generally has three years from your filing date to initiate an audit, but that window extends to six years if substantial underreporting is found. You should keep all records used to prepare your return for at least three years, and hold onto investment-related documents for up to seven full years.

Related: How to boost your tax refund

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