How to Get in Trouble With the IRS

Three ways to make tax time more difficult, plus two things you shouldn’t be anxious about

Penelope Wang,

AARP

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En español

Published March 05, 2024

a man in a red sweater writes on a chalkboard

Chris Gash

As the April 15 tax filing deadline approaches (April 17 in Maine and Massachusetts), it’s very possible you’re getting nervous. After all, it’s been widely reported that 2022 legislation granted the IRS nearly $78 billion for goals including the hiring of thousands of new agents and an increase of its audit rate.

No need to worry. Most taxpayers have little risk of being audited, as we’ll explain. Nor do you need to worry about IRS agents showing up unannounced on your doorstep asking for money; the agency announced last summer that it was, with a few exceptions, ceasing its longtime practice of sending revenue officers to homes and businesses for surprise visits.

Still, it’s important to avoid mistakes that might trigger a second look from Uncle Sam — or cost you money. Here are three ways to cause yourself pain this year, plus two issues you shouldn’t lose sleep over

Video: Top Ways to Become a Target for the IRS

Stick with paper

Perhaps you’re one of the holdouts who still mail in paper returns because you’re not comfortable using tax software, or you simply feel it’s safer. It’s time to move online, as have more than 9 out 10 taxpayers. “Filing electronically is much more secure and accurate, and it’s pretty easy to do using tax software,” says Robert Nassau, professor at Syracuse University College of Law and director of the Low Income Taxpayer Clinic. Mailing in your paper return, in contrast, means slower processing by the IRS and a longer wait for any refund.

Another way to beef up your security is to enroll in the IRS Identity Protection PIN program. That will prevent someone else from filing a return in your name, even if they have your Social Security or Individual Taxpayer Identification Number, as they would also need your PIN number to do such a transaction.

Estimate Your 2023 Taxes

AARP’s tax calculator can help you predict what you’re likely to pay for the 2023 tax year.

Get careless about your tax forms

The employers and financial institutions that send you your tax forms simultaneously send that same information to the IRS. If IRS computers find that the numbers on your return don’t match the ones they received separately, that could trigger an audit letter.

“It’s crucial to be sure you have all your essential tax paperwork, since it’s easy to miss something,” says Barbara Camaglia, a CFP and CPA in Beachwood, Ohio. That includes forms such as W-2s from your employer, if you’re still working; your SSA-1099, if you receive Social Security benefits; and other 1099s reporting interest or dividends, proceeds from sales or retirement account distributions.

You should have received all these forms by now; the deadline for employers to send wage or income forms was Jan. 31; financial organizations had until Feb. 15 to send their 1099s. So double-check any mail that has piled up; you may also have to log in to your bank account to get a 1099-INT interest statement.

Let an RMD slide

Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your traditional IRAs or pretax 401(k) account each year, once you reach a certain age. If you were born in 1950 or earlier but you failed to take your RMD during 2023, act fast: Contact your plan custodian and take the RMD for the prior year, file Form 5329 with the IRS and include a letter explaining why you didn’t take the RMD by the Dec. 31 deadline. By fixing your mistake before the IRS catches it, you should avoid a 25 percent penalty tax on the amount you should have withdrawn, though you may have to pay a 10 percent penalty instead.

Whatever your age, it’s not too early to strategize your RMDs for 2024 and beyond. If you’re turning 73 this year, 2024 is the first year for which you’ll have to take an RMD. You have until April 1, 2025, to take your first year’s RMD. But taking your 2024 and 2025 RMDs in the same calendar year might mean higher taxes or Medicare premiums, so you might be better off taking that first RMD this year.

Will it be a few years before you turn 73? Consider making withdrawals — also known as distributions — even though they’re not required. Taking distributions now will reduce the size of your RMDs once you have to take them. And that might prevent your RMDs from bumping up your tax bracket, raising your Medicare premiums and increasing the taxes on your Social Security benefits, says Kristine McKinley, a certified financial planner and CPA in Kansas City, Missouri.

If you’re age 70½ or older, an additional tactic for reducing your RMDs — and your tax bill — is to make a qualified charitable distribution (QCD) directly from your IRA account to a designated charity. For those 73 or older, the QCD will count toward your RMD. Though you won’t be able to claim a deduction for the donation, you won’t be taxed on the distribution.

But worry less about ...

Getting audited

Although the IRS is stepping up its audit rate, those exams are mainly aimed at taxpayers making $400,000 or more and business partnerships. “The average taxpayer is not a focus of the audits,” says David Kass, executive director of Americans for Tax Fairness, a nonprofit advocacy group.

As IRS data shows, for taxpayers earning between $50,000 and $200,000, audit rates in 2022 were just 0.2 percent, or 2 people out of 1,000. By contrast, the rate climbed to 1.3 percent for those earning $1 million to $5 million and 8.7 percent for people with incomes higher than $10 million.

If you should happen to get an audit letter or a notice of a discrepancy regarding your return, it may just be that you’ve forgotten to enter a form in your return — say, a stray 1099. Don’t panic. But don’t ignore the correspondence either, Nassau says. If you fail to respond by the deadline given, the IRS will automatically assume that its numbers, not yours, are the correct ones, or disallow the entries on your return that it has questions about. Simply send answers to any questions you’re asked — audits are usually done by mail — and include copies of relevant documentation (not original documents).

Paying a lot to file

The good news is that for low- and middle-income taxpayers, there are many free and low-cost tax-filing resources available, starting with the AARP Foundation Tax-Aide program. Find a Tax-Aide location near you and see a full list of the documents you’ll need to get your return prepared.

If your adjusted gross income is $79,000 or less, you can file your federal taxes for free. Several tax prep companies also provide free filing if you have a simple return, including TurboTax Free Edition and H&R Block Free Online Tax Filing.

People with moderate incomes, disabilities or limited English can get free tax prep via IRS-certified volunteers through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs.

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