If the IRS claims that you have unreported
income, the IRS will mail out a notice to you in an attempt to
collect taxes on the unreported income. Unreported income could
set the IRS audit red flags off. There are a few ways
unreported income can occur. Firstly, the IRS used a process
called the Automated Underreporter program or AUR. Using this
AUR program, the IRS searches all files under your social
security number. The AUR program then compares all the
tax returns information. When there is a mis match of income
reported, the IRS will mail out a letter. Another way the IRS
can come across unreported income is by evidence of criminal
activity or leads.
Evidence of criminal activity
The IRS continually receives evidence
of criminal activity from a variety of sources. These
evidence of criminal activity often lead to unreported income.
The sources of evidence of criminal activity and unreported
income include federal, state, and local law enforcement
IRS audit leads
The IRS often develop IRS audit leads
simply from reading the newspaper. The IRS knows that many
criminal activities will undoubtedly involve unreported
Example of unreported income
An example of unreported income is as
If a newspaper reports that Jay Manual who
resides at 147 East Ocean Street was caught late last night
with 2 ounces of cocaine in his car, the IRS may conclude
that Jay Manual was selling cocaine and probably not reporting
the income on his tax return.
While the IRS has no way of knowing whether
this is indeed true, the IRS will certainly want to
investigate and the IRS does this by an IRS audit.