But the IRS is now using sophisticated software and data analysis that puts it in touch with taxpayers before the official audit process begins.
“Now with automation and the electronic submission of W-2s and 1099s, the IRS just matches the information,” said David Kautter, managing director of the Kogod Tax Center at American University. “If you don’t report something, it is almost automatic that you’ll get a letter from the IRS.”…
“What’s happening over the years is that the IRS has relied more on systems and less on traditional audits so the audit effort can be focused on places where there are real issues,” said Edward Kleinbard, a professor at the University of Southern California Gould School of Law and former chief of staff at the Joint Committee on Taxation. “The IRS has been significantly underfunded relative to the number of burdens placed on it.”
Audits are no longer the backbone of tax enforcement. Instead, they’ve become a strategic tool to target taxpayers who are claiming big deductions — like wealthy people donating to charity and small businesses writing off expenses.