Ask the Tax Editor, May 8: Will I Be Audited by the IRS?

Why It Matters

Reduced audit capacity forces the IRS to concentrate on the most financially impactful discrepancies, meaning errors in refundable credits or pass‑through entities carry heightened risk and potential penalties.

Key Takeaways

• Individual audit rate below 1% and trending down
• IRS uses AI to target high‑risk refundable credits
• Inflation Reduction Act gave IRS $80 billion, most rescinded
• Partnership and S‑corp audits fell sharply 2025‑2026
• 15 red‑flag behaviors can trigger correspondence audits

Pulse Analysis

The landscape of IRS enforcement is shifting dramatically as chronic underfunding trims the agency’s ability to conduct traditional, in‑person audits. With fewer auditors on the payroll, the Treasury has turned to sophisticated data‑mining tools and machine‑learning algorithms to sift through millions of returns. This technology flags anomalies—such as unusually large deductions or mismatched income figures—allowing the IRS to focus its limited resources on cases with the highest revenue potential. For taxpayers, the message is clear: compliance must be airtight, especially when the agency’s audit pool shrinks.

Refundable tax credits have become a prime target for the IRS’s new, efficiency‑driven approach. The agency reported an overpayment of $21.4 billion in FY 2024 alone, prompting a wave of correspondence audits that often resolve without a face‑to‑face meeting. These audits typically address one or two specific issues, making them cost‑effective for the service while still recovering substantial sums. Tax professionals should therefore double‑check eligibility criteria for credits like the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Credit, as errors can trigger swift, paperwork‑intensive reviews.

Pass‑through entities—partnerships, LLCs, and S‑corporations—are also feeling the squeeze. Although the 2022 Inflation Reduction Act earmarked $80 billion for enforcement, congressional rescissions and subsequent budget cuts have slashed audit numbers for high‑income individuals and entities. From FY 2025 to FY 2026, audits of partnerships dropped from 3,174 to 2,932, and those of $10 million‑plus earners fell dramatically. Coupled with a projected 18% cut in enforcement funding for FY 2027, the IRS is likely to continue prioritizing low‑hanging fruit, such as the 15 red‑flag behaviors outlined by Kiplinger’s tax editor. Understanding and mitigating these triggers can help taxpayers avoid costly audits in an era of leaner IRS resources.