The following are likely IRS exam/audit issues according to the Internal Revenue Manual (IRM 184.108.40.206.1.1)
- Unusually high total deduction.
- Itemized deductions are not claimed elsewhere on the return when standard deduction has been elected.
- A taxpayer reporting married filing separate on the return, may not have made the same election for itemized deductions versus the standard deduction as the other spouse.
- Significant car and truck expenses (e.g. mileage).
- Medical Expenses:
- Overall medical, dental etc., expense in relation to the AGI.
- Medical expenditures for a capital asset.
- Real estate taxes (often looking for consider changes in address).
- Interest payments to individuals.
- Closing costs on real estate transactions.
- Interest as a result of a mortgage greater than the indebtedness limit.
- Interest payments deducted as personal interest.
- Large Charitable contributions donations or property or cash made to any charitable organization.
- Payments that may represent tuition.
- High ratio of the contribution to the taxpayer's total positive income.
Casualty or Theft Loss:
- No insurance reimbursement.
- Business assets, valuation methods and statutory limitations.
- Large, unusual or questionable items that do not correspond to the taxpayer's occupation or income level.
Pension and/or Annuity:
- Premature distribution from a pension/profit sharing plan.
- Amounts are not reported elsewhere on the return.
- Distribution not properly claimed as a lump sum distribution.
- Relationship between income reported on the return and exemptions and deductions claimed.
- Sources of income and any omission of income.
- Information Reporting Program mismatch.
- Occupations likely to have unreported cash income, for example: waiter, cab driver, porter, beautician, etc.
- Improper exclusions.
- Truthfulness of move (IRS looks for sale of residence and/or research on new and old address).
- Not eligible due to employer reimbursement.
- Alimony Deductions
- Child Tax Credit.
- Child and Dependent Care Credit.
- Education Tax Credits - Hope and Lifetime Learning.
- Premium Tax Credits.
- Qualified Adoption Credits.