Think the IRS Is Slowing Down? Why That Might Actually Increase Your Audit Risk
You’ve probably seen the headlines:
“IRS funding slashed.” “Audit rates down.” “Staffing cuts.”
If you’re a business owner, investor, or part of a high-earning household, you may be thinking:
Finally, some breathing room.
But here's the reality:
The IRS isn’t pulling back. It’s just getting smarter about who it goes after.
The IRS Isn't Auditing Everyone—Just the “Right” People
With fewer agents and a push for efficiency, the IRS is relying more than ever on technology, especially something called the Discriminant Inventory Function System, or DIF.
Think of DIF like a risk-scoring engine for tax returns. It compares your numbers—income, deductions, expenses—to national norms for similar taxpayers. The more your return deviates from what’s typical for your income level, industry, or filing status, the higher your score… and the greater your audit risk.
Want to dig deeper into the DIF system? Read the GAO’s breakdown on how the IRS selects returns for audit.
What Gets Flagged? Here Are the Most Common Red Flags:
According to industry data and IRS enforcement trends, here are some of the top audit triggers:
Unreported income – This includes anything from 1099 income to tips, crypto gains, or rental income. If the IRS has a record of it and you didn’t include it, a CP2000 notice may be coming.
Large deductions vs. income – If you earn $75,000 and claim $40,000 in business deductions, expect the DIF to notice. Especially true for Schedule C filers.
Crypto transactions – Digital assets are a growing audit target. If you’re dabbling in crypto but skipping IRS Form 8949 or the crypto checkbox, you’re on thin ice.
Repeated business losses – If your business consistently reports losses, the IRS may classify it as a hobby, not a business, and disallow deductions.
Cash-intensive businesses – Restaurants, salons, contractors, and others operating heavily in cash are often scrutinized for underreporting.
Home office deductions – A common mistake? Claiming a home office without meeting the strict “exclusive and regular use” test.
Fewer Letters Don’t Mean Less Risk
Today’s IRS isn’t about paper mail and phone calls.
It’s about algorithms and matching engines quietly reviewing your data and issuing notices like the CP14 (balance due) or CP2000 (income mismatch) months after you file.
Often, taxpayers don’t even realize they’ve been flagged until interest and penalties have already started piling up.
What You Can Do Now
Here’s the good news: You don’t need to be afraid of an audit—you just need to be prepared.
Double-check your return for accuracy and consistency with any W-2s, 1099s, or crypto reports
Keep solid records of deductions, mileage, and business expenses
If you’re unsure about a past return or received a notice, don’t ignore it—review it with a pro
Know that audit selection is increasingly about patterns, not just income level
Need a Second Opinion—or a Bit of Peace of Mind?
If something on this list hits close to home—or if you've received a confusing notice from the IRS—don't guess.
Our office can help you review your IRS transcripts, explain the notice, and decide if action is needed.
No scare tactics. Just straight answers, grounded in what’s really happening inside the IRS today.
Contact our office if you’d like help reviewing your situation or understanding your risk. We’re here to guide, not judge.
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Get to Know Prestige Accounting Services Group
Offices in Flemington, NJ, and Califon, NJ
Our Mission: At Prestige Accounting Services Group, we are on a mission to redefine the tax experience for individuals and small businesses. With a focus on personalized service, strategic planning, and expert guidance, we aim to empower our clients to succeed financially with confidence and ease.
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Why Choose Us?: What sets us apart from other New Jersey tax firms is our commitment to excellence and innovation in the field of taxation. We don't just prepare tax returns; we provide strategic insights, proactive planning, and actionable advice to help our clients achieve their financial goals. With a team of two CPAs, an EA, and an ERO, we have the expertise and resources to deliver exceptional service and results.
Your Success is Our Priority: At Prestige Accounting Services Group, we measure our success by the success of our clients. We are dedicated to building long-lasting relationships, providing unparalleled service, and helping our clients thrive in today's ever-changing tax landscape.
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