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Common Questions


An IRS computer program generally decides which returns will be audited. This determination is made with a search for what are commonly called "Red Flags." The computer is looking at the return to detect variances from the national average in numerous categories of deductions.

Here are a few examples of Red Flags:

  • Discrepancies between amounts on your return and what a third party reported to the IRS, such as how much mortgage interest you paid or how much 1099 income you received.
  • Your Return is prepared by a return preparer known to be dishonest by the IRS.
  • Divorced taxpayers both claim their children as dependents. Also, when an ex-husband reports paying alimony to his ex-wife, and the ex-wife fails to report all or part of the alimony, this can cause both returns to be audited.
  • Your itemized deductions exceed 43% of your adjusted gross income.
  • Schedule C business expenses exceed 64% of Schedule C gross receipts. (Just filing a Schedule C increases your chances of an audit by three hundred percent.)
  • High Medical deductions.
  • High charitable deductions or a large amount of non-cash charitable deductions.
  • Losses from farming operations.
  • Claiming un-reimbursed employee business expenses on Form 2106 and Schedule A.
  • Excessive Casualty and Theft loss deductions.
  • Unusually high losses on rental property that you own, Schedule E.
  • Unusually high capital losses on Schedule D.

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Nine years ago I hired Swaim & Associates to do the tax returns for 6 corporations and partnerships as well as my personal returns. The amount of money going to the government dropped by more than 29%. I was amazed when they showed me how much could be saved by using deductions we had never thought of…deductions that we missed out on for years because of “conservative” accountants.
C.W. Merritt, III, Greenville, NC