The IRS Is Reducing Audits on Low- and Moderate-Income Filers. Here's What You Need to Know

Many of us have seen a tax audit play out in a movie or TV show. A big scary IRS agent comes knocking at the door, and the next thing you know, there's a team of people coming in to ransack files and haul laptops away.

Scenes like that might make for interesting content, but you should know that's not how audits work in reality the overwhelming majority of the time. The IRS does not have the financial resources to send teams of agents to the door of every single tax filer whose return seems a bit off. 

Most of the time, an audit will involve getting a letter in the mail and having to respond with additional information or documentation. Not only will you not have to deal with an IRS agent invading your home, but you probably won't even have to speak to one over the phone. 

That said, most people would rather not have their taxes audited. And if you're someone who typically claims the Earned Income Tax Credit, or EITC, going forward, your chances of having your tax return scrutinized may be significantly lower.

Focusing on higher earners

The IRS is changing its approach to tax audits as part of an ongoing overhaul. The agency recently announced that beginning in 2024, it will substantially reduce the number of audits for tax-filers claiming the EITC. 

The EITC is a fully refundable credit designed to help low and moderate earners. Most tax credits are only partially refundable or not refundable at all, so the EITC is particularly valuable because it could result in a multi-thousand-dollar refund for someone with no tax liability.

Historically, though, the EITC has been associated with higher incidents of fraud. It's for this reason that the IRS generally has to delay refunds associated with the credit until mid-February.

Starting next year, though, tax filers who claim the EITC may be less likely to have their returns audited. On the other hand, the IRS says it plans to leverage technology to go after unpaid taxes from higher earners, as well as businesses. 

This shift makes sense. Who's likely to be shielding more income from the IRS? Someone earning $30,000 a year or someone earning $3 million?

An easy way to avoid a tax audit

While audits don't tend to be nearly as scary in real life as they are on screen, if you're eager to avoid one, do one thing -- be honest on your tax return. It's that simple. Report all of your income and don't claim deductions for expenses you never incurred. 

Similarly, don't fudge your deductions. If you bought yourself a new TV, so be it. Go enjoy it. But don't claim it as a deduction for your pet-sitting business if that's not what it's used for. 

Of course, in some cases, you might still end up getting audited despite having been perfectly honest on your tax return. But in that case, don't panic. An audit is often nothing more than the IRS seeking out additional information. Provide it in a timely manner, and you'll be able to move on with your life without having to worry about drastic repercussions.