Top 10 IRS Audit Red Flags: Are You on the Radar?

Is your tax return raising a red flag?

Most taxpayers will never face an IRS audit, but certain patterns on a return make you much more likely to be selected for a closer look. By understanding the most common “red flags,” you can file accurately, claim every deduction you’re entitled to, and still minimize audit risk.

How the IRS Picks Returns

The IRS runs every filed return through a scoring system (often called the DIF score) that compares your income, deductions, and credits to others in similar situations. Returns that look unusually aggressive for their peer group are kicked out for manual review and are more likely to be audited.

Think of it this way: the further your return looks from “normal” for your income level and occupation, the more likely it is to be flagged.

1. Not Filing When You Should (Income)

If you have reportable income and simply don’t file, you are inviting IRS attention. The agency receives W‑2s, 1099s and other information directly from payors, and missing returns with visible income are prime candidates for enforcement and substitute-for-return assessments.

How to reduce the risk:

·         File every required return, even if you can’t pay in full.

·         Respond promptly to non‑filer notices before the IRS files an estimated return for you.

2. Reporting Too Little Income (Income)

Underreported income is one of the biggest audit triggers. IRS computers automatically match what you report against W‑2s, 1099‑NEC, 1099‑K, 1099‑INT, K‑1s and other forms filed by third parties. If you leave something off, the mismatch can generate a notice or an examination.

How to reduce the risk:

·         Track all sources of income, including gig work, side businesses and digital platforms.

·         Reconcile your numbers to every tax form you receive before filing.

3. High Income With Aggressive Patterns (Income)

Higher‑income taxpayers face higher audit rates, especially when their returns show large losses, complex activities or deductions that don’t “fit” their income profile. AI‑driven systems now do a better job of spotting outliers among high earners with closely held businesses, significant investments, or multiple K‑1s.

How to reduce the risk:

·         Make sure complex items (partnerships, S corporations, trusts) are prepared with solid documentation and professional support.

·         Expect more scrutiny if you are in the top brackets and plan accordingly.

4. Foreign Income, FEIE and Housing Exclusion (Foreign ties)

The foreign earned income exclusion and foreign housing exclusion are legitimate but often misunderstood benefits. Claims that don’t clearly meet the physical‑presence or bona fide residence tests—or that swing in and out from year to year—can draw attention.

How to reduce the risk:

·         Maintain detailed travel calendars and proof of foreign residence if you rely on these exclusions.

·         Coordinate foreign tax credits, exclusions and treaty positions so the return presents a consistent story.

5. Unreported Foreign Accounts and Assets (Foreign ties)

Failing to report foreign financial accounts (FBAR) or specified foreign assets (Form 8938) is a classic red flag. The IRS receives increasing amounts of data from foreign financial institutions under FATCA and information‑sharing agreements and cross‑checks it with filed returns.

How to reduce the risk:

·         Disclose all foreign accounts when you exceed the filing thresholds, even if the income is small.

·         Address past non‑compliance proactively; penalties for willful failures are severe.

6. Disproportionately Large Charitable Deductions (Deductions & credits)

Charitable giving is encouraged in the tax code, but deductions that look unusually large relative to your income are one of the most common audit triggers. Non‑cash contributions, such as appreciated securities or property, are especially likely to be scrutinized if appraisals and acknowledgments are missing or incomplete.

How to reduce the risk:

·         Keep written acknowledgments for gifts of 250 dollars or more and qualified appraisals when required.

·         Make sure total giving is realistic for your income level and consistent from year to year, or be prepared to explain real changes.

7. Rental Losses and “Real Estate Professional” Status (Deductions & credits)

Rental real estate losses that routinely wipe out wage or business income are a magnet for IRS attention. Returns claiming real estate professional status to avoid passive loss limits are regularly examined for contemporaneous time logs and actual material participation.

How to reduce the risk:

·         Maintain detailed logs of hours and activities for each rental or real estate business.

·         Be careful when grouping activities and when claiming that real estate is your primary trade or business.

8. Excessive Self‑Employed and Small‑Business Deductions (IRS transactions)

Schedule C filers and small businesses have more room for judgment, which means more room for the IRS to question whether expenses are ordinary, necessary and truly business‑related. Very high ratios of expenses to income, repeated Schedule C losses, or large write‑offs for vehicles, travel, meals, or “consulting” to family members are frequent audit triggers.

Rounded or “too neat” numbers—10,000 for advertising, 5,000 for supplies, 20,000 for travel—also suggest that estimates, not actual records, are being used.

How to reduce the risk:

·         Separate business and personal accounts and keep receipts or digital records to support every significant deduction.

·         Avoid making up round numbers; use actual totals from your books.

9. Alimony and Other Sensitive Adjustments (Deductions & credits)

For divorces finalized after 2018, alimony is generally not deductible to the payer or taxable to the recipient; older agreements are treated differently. Mismatches between what one spouse deducts and what the other reports, or incorrectly claiming alimony on a post‑2018 agreement, can lead to questions.

Other above‑the‑line deductions and credits—such as education benefits or child‑related credits—also draw attention when they are unusually large or inconsistent with the rest of the return.

How to reduce the risk:

·         Confirm exactly how your divorce decree treats payments and which tax rules apply to your agreement year.

·         Keep documentation for education expenses, dependency claims and similar items that the IRS frequently disallows.

10. Virtual Currency and Digital Assets (IRS transactions)

Digital assets are now squarely in the IRS spotlight. There is a dedicated question on Form 1040, brokers must issue new Form 1099‑DA information reports, and the IRS uses advanced data‑matching and AI tools to cross‑check exchange data with individual returns. Failing to answer the digital asset question accurately or omitting taxable crypto sales, staking income, or other transactions is increasingly risky.

How to reduce the risk:

·         Keep wallet‑by‑wallet records of buys, sales, swaps, and income events and reconcile them each year.

·         Report all taxable events on Form 8949 and Schedule D, even if you did not receive a 1099 from an exchange.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

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2.      https://www.aarp.org/money/taxes/irs-audit-red-flags/ 

3.      https://www.everlance.com/blog/irs-audit-red-flags 

4.      https://shoaibahmedcpa.com/blogs/tax-services/irs-tax-audit-2026/        

5.       https://profitwiseaccounting.biz/what-the-irs-is-looking-for-in-2026/   

6.      https://kkca.io/expat-taxation/top-5-irs-audit-red-flags-for-expats/   

7.       https://www.kiplinger.com/taxes/irs-audit-red-flags-for-retirees 

8.      https://www.nsktglobal.com/usa/blog/how-to-avoid-irs-business-tax-audits-2026 

9.      https://money.usnews.com/money/personal-finance/slideshows/9-red-flags-that-could-trigger-a-tax-audit 

10.   https://turbotax.intuit.com/tax-tips/irs-letters-and-notices/top-red-flags-that-trigger-an-irs-audit/L2TzlqFNe 

11.    https://www.nidhicpa.com/the-new-audit-triggers-what-the-irs-will-flag-most-in-2026/

12.   https://www.taxesforexpats.com/articles/expat-tax-rules/who-is-likely-to-be-targeted-for-an-irs-audit.html

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16.   https://www.everlance.com/blog/irs-audit-red-flags  

17.    https://www.therealestatecpa.com/blog/irs-audit-red-flags-every-taxpayer-should-know/        

18.   https://allenbarron.com/are-there-strategies-to-avoid-an-irs-audit/   

19.   https://hopkinscpa.tax/irs-dif-score-guide/ 

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21.   https://www.irs.gov/pub/irs-soi/puidif2.pdf

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24.  https://www.aarp.org/money/taxes/irs-audit-red-flags/

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26.  https://shoaibahmedcpa.com/blogs/tax-services/irs-tax-audit-2026/     

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IRS Simple Payment Plans Expanded to Businesses: What You Need to Know for 2026

In e-News for Tax Professionals 2026-05, the IRS has quietly made a big change that will matter to a lot of cash‑strapped businesses and their owners: “Streamlined Installment Agreements” have been rebranded and expanded as Simple Payment Plans, and as of December 3, 2025, they now fully cover many business taxpayers, not just individuals.

For practitioners and business owners, this means more cases can be resolved quickly, without financial disclosures, with predictable terms and fewer headaches.

What Is a Simple Payment Plan?

A Simple Payment Plan is a long‑term payment arrangement with the IRS for taxpayers who owe but can’t pay in full right away. These plans are designed to be quick to set up and low‑friction:

·         No collection information statement (no Form 433) is required to qualify.

·         No lien determination is required as part of the qualification criteria.

·         No trust fund recovery penalty determination is required just to get into the plan.

·         Taxpayers must be current with all filing and payment obligations.

Previously, this streamlined treatment was largely discussed in the context of individuals, but now the IRS has folded key business installment agreement programs into this “Simple Payment Plan” framework.

The Big Update: Businesses Are Now Included

On December 3, 2025, the IRS updated how it processes business installment agreements. Two familiar business programs are now handled under the Simple Payment Plan umbrella:

·         In‑Business Trust Fund Express Agreement

·         Business Streamlined Agreement

Both are now processed using the updated Simple Payment Plan qualifications. In practice, this means more in‑business and out‑of‑business taxpayers can get a plan set up quickly if they stay under the new dollar thresholds and are current on filings.

Who Qualifies? Key Dollar Thresholds

The Simple Payment Plan is all about the total assessed tax, penalties, and interest. Here are the current thresholds:

Individuals

·         Total assessed tax, penalties, and interest of 50,000 dollars or less.

This continues the long‑standing streamlined concept for 1040 taxpayers, now under the “Simple Payment Plan” label.

Businesses With Trust Fund Taxes

Trust fund taxes are amounts withheld from employees (such as federal income tax withholding and the employee portion of FICA) that the business holds in trust for the government.

For businesses with trust fund taxes:

·         25,000 dollars or less in assessed tax, penalties, and interest; or

·         50,000 dollars or less for an out‑of‑business sole proprietorship.

That last point is important: an out‑of‑business sole proprietor with trust fund exposure can still benefit from the higher 50,000‑dollar threshold.

Businesses Without Trust Fund Taxes

For businesses that do not owe trust fund taxes (for example, some income‑tax‑only cases):

·         50,000 dollars or less in assessed tax, penalties, and interest.

What If the Balance Is Too High?

If a taxpayer does not qualify for a Simple Payment Plan under these thresholds, they may still qualify for another type of payment plan under standard IRS installment agreement rules. That may require a collection information statement, lien analysis, and possibly a more detailed negotiation.

Basic Requirements: Staying Current

All applicants for a Simple Payment Plan must be current with filing and payment obligations. That generally means:

·         All required returns are filed.

·         Current‑year withholding or estimated tax payments are up to date.

For businesses, that also means current federal tax deposits must be made on time if the business is still operating.

The IRS will not approve a Simple Payment Plan if the taxpayer is still accruing new balances through missed deposits or estimated payments.

Payment Terms and Methods

While the exact terms can vary by case, the Simple Payment Plan is intended to fit within the normal collection statute, which often allows several years for full payment. Longer terms, however, mean more interest and penalties over time.

Accepted payment methods include:

·         Direct debit from a bank account (often the smoothest and most favored method).

·         Monthly payments via IRS Direct Pay.

·         Debit or credit card, digital wallet, or cash through approved third‑party processors.

Direct debit can reduce setup fees in some situations and tends to lower default risk.

How to Apply: Individuals vs. Businesses

The application path is different for individuals and businesses.

Individuals

Individuals can:

·         Sign in to their IRS online account to request a Simple Payment Plan.

·         Call the phone number listed on their IRS notice.

·         Call general IRS individual accounts at 800‑829‑1040.

Online access remains the fastest route for many 1040 balances that fall within the 50,000‑dollar limit.

Businesses

Businesses or their authorized representatives can:

·         Call 800‑829‑4933 (business and specialty tax line).

·         Visit a local Taxpayer Assistance Center (TAC) after scheduling an appointment.

These channels now process eligible business installment requests under the updated Simple Payment Plan rules.

Practical Takeaways for Business Owners and Advisors

For owners and advisors, the expanded Simple Payment Plan rules create several planning opportunities:

·         Faster resolution for qualifying in‑business 941 and 1120 cases with balances under the new thresholds.

·         Less intrusive setup for many out‑of‑business entities and sole proprietors, especially with trust fund exposure under 50,000 dollars.

·         Clear guidance on when a case can be handled quickly versus when a full‑blown financial disclosure‑based installment agreement is necessary.

For more detail, including the latest payment terms and options, the IRS maintains a dedicated “Simple Payment Plans for individuals and businesses” page on IRS.gov.

Need Help with an Installment Payment Plan?

 

Contact the Tax Lawyers at 

Marini& Associates, P.A.  
 

  

for a FREE Tax HELP Contact Us at:

www.TaxAid.com or www.OVDPLaw.com 

or Toll Free at 888-8TaxAid (888) 882-9243