The IRS is ramping up its audit efforts, targeting large businesses and high-income individuals. By 2026, the agency plans to nearly triple its audit rates for large corporations with assets over $250 million. Partnerships with assets exceeding $10 million will also experience a tenfold increase in audit rates by 2026. This escalation in audits is part of the IRS’s broader strategy, funded by 
the Inflation Reduction Act, to focus on wealthier entities and high-dollar noncompliance.
The IRS does not plan to increase audits for individuals earning less than $400,000 annually, and small businesses are unlikely to see a rise in audit rates soon, as the agency prioritizes more complex returns from higher-wealth entities. One area of focus is taxpayers who personally use business aircraft; while businesses can deduct the costs associated with corporate planes, personal trips, including vacations, are not deductible.
Preparation is Key
To effectively navigate an IRS audit, advance preparation is crucial. Maintain systematic documentation—such as invoices, bills, canceled checks, receipts, and other proof—for all items reported on your tax returns. Organize all records in one centralized location.
It’s also helpful to know which aspects may attract the IRS’s attention. Certain entries on tax returns are more prone to inaccuracies, potentially leading to an audit. Common triggers include:
- Significant discrepancies between prior tax returns and your most current return.
- Gross profit margins or expenses that differ significantly from industry averages.
- Miscalculated or unusually high deductions.
The IRS may scrutinize specific deductions due to strict recordkeeping requirements, such as those for auto and travel expenses. Additionally, an owner-employee’s salary that is much higher or lower than similar companies in the area may raise flags, particularly if the business operates as a corporation.
Responding to an Audit
If the IRS selects you for an audit, you will receive notification by mail. Generally, the IRS does not initiate contact by phone; however, if you do not respond to the letter, the agency may follow up with a call.
Most audits require you to mail in receipts or other documentation to support claimed deductions. Only the most stringent audits, known as field audits, require an in-person meeting with IRS auditors. (Be cautious of unsolicited emails or text messages regarding audits, as the IRS does not use these methods for communication—such messages are scams.)
The IRS does not expect an immediate response to a mailed notice. You will receive details about the discrepancies in question, along with time to prepare. Gather and organize all relevant income and expense records. If you are missing any information, reconstruct it as accurately as possible based on available documentation.
If you find yourself facing an audit, our firm can assist you by:
- Clarifying what the IRS disputes (which may not always be clear),
- Collecting the specific documents and information needed, and
- Responding to the auditor’s inquiries effectively.
The IRS typically has three years to conduct an audit, which usually does not start until a year or more after you file your return. Stay calm if the IRS contacts you, as many audits are routine. By adopting a meticulous and proactive approach to tracking, documenting, and filing your company’s tax-related information, you can make an audit more manageable and potentially reduce the likelihood of being selected in the first place.
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