High-income tax returns are more likely to include income or losses from pass-through entities, include more grey-area tax positions and involve taxpayers who may have offshore accounts, DiBenedetto said.
Kollauf said likely audit triggers include “claiming of the qualified business income deduction or improper handling of net operating losses." Another possible audit trigger: Non-routine, large charitable deductions.
“Many taxpayers were counseled on lumping deductions in one year to rise above the standard deduction in a least some tax years,” Kollauf said. “The IRS matching and norm-analytics could bring that higher deduction into a red-flag zone.”
On the state level, Phillips added, “If [the client has] an interest in a business, especially one claiming its home location to be in another state, the odds of an audit are probably higher.”
Many states are notified of IRS audit changes and send notices to taxpayers for amounts due as a result of the change. According to DiBenedetto, five states where taxpayers have the highest likelihood of an audit are Hawaii, New York, Delaware, Michigan and Massachusetts.