No, people of all income levels can be audited, but the audit rates and types of audits differ depending on income and other factors. In fact, low-income taxpayers, specifically those claiming certain credits, are often audited at disproportionately high rates, primarily through automated correspondence.
Which Taxpayers the IRS Audits Most Often. Oddly, people who make less than $25,000 have a relatively high audit rate. This higher rate is because many of these taxpayers claim the earned income tax credit, and the IRS conducts many audits to ensure that the credit isn't being claimed fraudulently.
Below are the most commonly audited business types, with reasons for IRS focus:
Your chance is actually very low — this year, 2022, the individual's odds of being audited by the IRS is around 0.4%.
Families like the Waltons, Kochs, and Mars can avoid capital gains taxes forever by holding onto assets without selling, borrowing against their assets for income, and using the stepped-up basis loophole at inheritance. That loophole allows the increased value of assets to be passed to their heirs tax-free.
The 9 most effective tax minimisation strategies for wealthy Australians in 2025 include:
Taking Advantage of Capital Gains, Not Salary
One of the biggest reasons Bezos pays little in personal income tax is that he doesn't rely on a traditional salary. Instead, he holds most of his wealth in Amazon stock. Here's why this matters: Capital gains taxes are much lower than income taxes in most cases.
Unreported income
The IRS receives copies of your W-2s and 1099s, and their systems automatically compare this data to the amounts you report on your tax return. A discrepancy, such as a 1099 that isn't reported on your return, could trigger further review.
Not reporting all of your income is an easy-to-avoid red flag that can lead to an audit. Taking excessive business tax deductions and mixing business and personal expenses can lead to an audit. The IRS mostly audits tax returns of those earning more than $200,000 and corporations with more than $10 million in assets.
The IRS usually reviews receipts during an audit — if you don't have the receipts, you can sometimes use bank statements or credit card statements to prove your claims instead. Consequences of being audited without receipts can include additional taxes, interest, and financial penalties.
The IRS uses several different selection methods: Random selection and computer screening - sometimes returns are selected based solely on a statistical formula. We compare your tax return against "norms" for similar returns.
While most taxpayers' chance of audit is less than 1%, the odds increase once you earn $500,000 or more in taxable income.
The $600 rule says that any business that pays you more than $600 is required to file a 1099 with the IRS and give you a copy. Tax law says that you have to report all of your income on your tax return even if you never get a 1099.
There are five potential threats to auditor independence: self-interest, self-review, advocacy, familiarity, and intimidation. Any lack of independence compromises the integrity of financial markets.
The overall odds of an IRS audit are low, about 4 out of every 1,000 returns. However, high-net-worth individuals are more likely to be targeted due to complex income sources, large deductions, and sophisticated financial structures.
What will happen if you fail the audit depends largely on what the IRS has assessed. It will impose tax penalties if errors are found in your tax returns. There's also the possibility of jail time in serious cases of tax evasion and tax fraud.
Filling out an accurate tax return is the best way to avoid an audit. Additionally, you should ensure you double-check your math and only claim legitimate tax deductions. E-filing may also be helpful. If you want to reduce the risk and hassle of going through an IRS audit, check out these five tips.
Here's a list of seven symptoms that call for attention.
The “Five C's” are criteria, condition, cause, consequence, and corrective action.
They can be triggered if the ATO notices that the numbers don't add up: Failure to declare income. Improperly claiming deductions. Your lifestyle not matching your nominal income.
What Not to Say During an Audit?
The four primary types of audits often discussed are Financial Audits, Compliance Audits, Operational Audits, and Internal Audits, though sometimes the focus is on the four types of audit opinions (Unqualified, Qualified, Adverse, Disclaimer) or other classifications like IT/Information Systems Audits or Forensic Audits. Generally, audits assess financial records, adherence to rules, operational efficiency, or internal controls, providing insights for stakeholders and improving business processes.
Billionaires often employ the “buy, borrow, die” strategy to avoid income and capital gains taxes. First, they acquire appreciating assets like stocks or real estate. Instead of selling these assets when they need cash (which would trigger capital gains tax), they borrow against them at favorable interest rates.
Bezos is said to have a rule about decision making, and he calls it the 70% Rule. It works like this: Whatever you're trying to figure out, you should make your decision when you have 70% of the information you need in order to come to a conclusion.