The Automated Underreporter (AUR) program is an important part of compliance efforts at the Internal Revenue Service (IRS).
Most people are aware they could be audited by the IRS. The thought of an IRS audit creates a picture of a taxpayer sitting across a desk from an IRS examiner along with stacks of financial documents. In truth, or at least according to the IRS Compliance Activities disclosure for 2021, this picture rings true–many audits were conducted via field examination that year. Together with correspondence audits done via mail, the IRS brought in an additional $26.8 billion in suggested additional tax.
After field examinations, the most common compliance mode used by the IRS is Automated Underreporter. This mostly automated program brought in an additional $10.3 billion in recommended additional tax. Taxpayers who breathe a sigh of relief upon receipt of their income tax return may not be aware that their return is about to be crawled by the AUR. So, what is the AUR?
As the name implies, the AUR is a partially automated process whereby your tax return is matched against information returns gathered by the IRS. Information returns and schedules available to the IRS are extensive, including much more than just W-2 and 1099 forms. Once the taxpayer is matched to their Social Security number, the tax and information returns are compared to identify mistakes and potential omissions on the tax return.
While all tax returns are subject to the AUR process, only a portion of returns are selected each year. According to the IRS, business rules are applied in choosing which returns will be processed by the AUR. Those rules are designed to aim at taxpayers who have previously under-reported, high-asset taxpayers who might be more likely to under-report, and a mix from all taxpayer segments.
Once processed, IRS examiners may review returns identified by the AUR as problematic. The IRS then issues successive notices to the taxpayer noting the discrepancy, suggesting an adjustment to tax liability, and last, a notice of deficiency if the taxpayer does not respond with an amended return.
The overall audit process is intended to catch errors in tax returns and to monitor for potential tax fraud arising from false income tax returns.
The AUR is a powerful tool capable of reviewing a wide swath of tax returns. When preparing your return, double-check for errors, recheck schedules, and be sure you can accurately document the numbers you are claiming on your return—without waiting for the IRS to do it for you.
