Unreported Income Can Trigger an IRS Investigation

If you fail to fully report your income to the Internal Revenue Service (IRS), you could be heading for tax troubles ahead.

Most taxpayers are aware that failure to file a tax return could catch up with them. Fictitious business expenses or children invented to obtain a heftier tax return are also pretty obvious tax dodges. Less often considered is the side hustle, like your gig job. While you appropriately pay taxes as a business owner or employee, you may think what you make on your side hustle is less of a concern. You may earn money at a hobby or a legitimate second job but may figure that is yours to keep—as long as you keep it off the table.

The IRS needs to know about that income too, and it may be easier than you think for the agency to learn about under-the-table payments.

The IRS Automated Underreporter (AUR) and You

There was a time when it took a lot of leg or bookwork for the IRS to figure out that taxpayers were earning more than they reported. Not so much anymore. The IRS Automated Underreporter Program (AUR) is a unit of the IRS in place to catch income that slips off the table.

Using automated software, agents can screen tax returns against notices provided by employers, vendors, and financial entities. The more complex your wealth, the more likely that digital fingerprints of your financial dealings are left behind. Whether it is a carefully quiet foreign bank account or other regular or occasional sources of income, there is a chance your tax return will be flagged as a mismatch if it falls within a compliance survey.

If a return is flagged, an IRS tax examiner may take a closer look for potential tax fraud. This type of review may turn up an unreported revenue stream, hidden bank accounts, and false statements attested to by you on your return—or to the accountant that created your return.