Countless number of people fear they will become the target of an IRS audit at one time or another in their life and this can send people into a major panic for they believe the IRS could ruin their lives with their findings and serious fines. The IRS has a criteria for auditing taxpayers and it comes out to be approximately 1.5 percent of all taxpayers – every couple of returns or placed in the ‘audit pile’ and most of these returns often show ‘red flags’ such as tax items that erroneous, tax items that need an explanation or proof of existence, a tax deduction that appears too high for an individuals income or they are on the IRS’s list of hot tax issues.

According to one analyst, it is important that the IRS put a fear in all taxpayers of having their taxes audited as well as auditing taxpayers to encourage voluntary acquiescence with tax laws.

Consistent with years past, it is a small percentage that an individual’s tax return will be singled out for an IRS audit if they are ‘playing by the rules.’ One reason is because the IRS does not employ enough personnel or have enough resources at their disposal to inspect every tax return coming through their doors including those that have a high audit potential. Although, there is a higher percentage for an individuals taxes to be audited because of the kind of work or profession they are engaged in, the amount of income reported, the kind of income reported and the types of tax deductions declared on their form.

In order to avoid an IRS audit, it is best to avoid these circumstances on your tax returns – large amounts of itemized deductions that exceed IRS ranges – claiming tax shelter investment losses – complex business or investment expenses – you work or own a business that receives tips or cash payments in the ordinary course of business– you have rental expenses or a prior IRS audit that resulted in tax shortage – you report large business expenses in relation to your tax return income reported– complex transactions for taxes without any explanations – you are a partner or shareholder in an audited business corporation or partnership – an informant has given information to the IRS regarding you.

The IRS does not explain the criteria by which it determines when a tax judgment is extreme. Several tax experts calculate the average tax deductions by income; others use these numbers as more or less a yardstick to establish if taxpayer’s deductions on their return are exceeding the ‘norm’.

Medical deductions are another source of contention with the IRS auditing services. They have seen cases in which a person’s taxable medical deduction exceeded 7.5 percent of their total income which in the IRS’s eyes is not right, however, once explained that the person was suffering from a rare illness and had no insurance to help with medical costs, the IRS let it go. Explanations go a long way to help in an audit situation – but only if asked for one by the IRS.