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IRS Red Flags: Five ways a business increases chance of audit

According to TurboTax, here is your chance of being audited if you are:

A Partnership, .4%
An S Corporation, .4%
A C Corporation, 1%
An individual filing a Schedule C, 1.17%
An individual filing a Schedule F, .6%

Your chances go up if:

  1. Your type of business has a large amount of cash sales (eg restaurants, small stores, gas stations and motels)
  2. Your industry has a poor history of compliance (eg. air charter companies, bed and breakfast inns, gas retailers, mortuaries, cab companies, music industry businesses)
  3. A business associate was audited (eg. You received large amounts of cash from them.)
  4. Facts and figures don’t match (eg. Wages per payroll tax reports to wages per income tax return.)
  5. You claim bad debt expense but are a cash-basis filer.

Mortuaries? I don’t get that one!

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.