Understanding and Avoiding Tax Audit Traps in Your Income Tax Return

What is a Tax Audit and Why You Should Be Concerned About It

Every year, millions of Brazilians file their income tax returns and wait anxiously: will the IRS accept everything correctly? For many, this wait ends well. For others, however, comes the dreaded notification that the return has been held for a tax audit. If you’ve never experienced this, great — but understanding what it is and how to avoid it can save a lot of stress (and money) in the future.

A tax audit is nothing more than the detailed verification process that the IRS conducts when it finds inconsistencies, omissions, or discrepancies between the information declared by the taxpayer and the data it already has in its systems. This data comes from various sources: employers, banks, health plans, brokerage firms, notaries, and even credit card operators. When what you declared doesn’t match what these sources reported, your return is separated for further analysis.

The problem is that being audited stalls any refunds — if applicable — and may result in additional tax charges with interest and penalties. In 2026, the IRS continues to refine its data cross-checking systems, making it increasingly difficult to overlook errors, intentional or not. Therefore, knowing the main causes and best practices for filling out the return is crucial for any filer.

How the IRS Detects Inconsistencies

The IRS has a sophisticated information cross-checking system fed by various accessory declarations that third parties are required to submit:

• DIRF (Withholding Income Tax Return): submitted by employers and payers, it reports the income and taxes withheld for each CPF.
• DIMOB: submitted by real estate agencies and construction companies, it records real estate purchase, sale, and rental operations.
• DOI (Declaration on Real Estate Transactions): prepared by notaries, it reports transactions with real estate.
• Information from financial institutions: banks and brokers report income from investments, balances, and significant transactions.
• DMED: submitted by health plan operators and medical service providers, it reports amounts paid per CPF.

When you declare an amount different from what one of these sources reported, the system automatically detects the discrepancy. The process is highly automated and does not initially depend on human review — technology does the filtering.

Main Causes of Being Audited

Knowing the most common errors is the first step to avoiding them. Here are the reasons that most often lead to returns being audited:

Omission of Income

This is the most frequent cause. The taxpayer forgets to declare a previous job in the same year, freelance work (as a legal entity or individual), rental income received, or alimony. Remember: all taxable income received during the year must be reported, regardless of whether there was withholding at the source.

Discrepancies in Medical Expenses

Many taxpayers report medical expenses that are not listed in the DMED or that were paid to professionals without proper registration. The IRS cross-checks each CNPJ or CPF reported. Expenses with professionals who did not issue a receipt or invoice are difficult to prove and may raise questions.

Errors in Declaring Dependents

Including a dependent already declared in another return (for example, when a separated couple declares the same child) is a classic error. Similarly, omitting the income of dependents who work or receive a pension generates automatic discrepancies.

Improper Education Deductions

Brazilian law allows deductions only for expenses with formal educational institutions (kindergarten, elementary, high school, technical, and higher education). Free courses, preparatory courses, and language classes are not deductible. Including them is an error that the IRS easily identifies.

Declaration of Assets and Transactions with Real Estate or Stocks

Selling a property or stocks on the stock exchange and not declaring the capital gain — or declaring it with incorrect values — is another common cause. If you trade on the stock exchange, it’s important to know how to declare stock sales in your income tax return correctly, as B3 provides information to the IRS.

Inconsistent Bank Information

Receiving significant amounts in an account without corresponding declared income can lead to questions. This is especially relevant for those moving money from inheritance, donations, or loans without properly registering them in the return.

How to Know if Your Return Was Audited

You can check the status of your return directly on the e-CAC (Virtual Service Center) portal, available on the official IRS website (receita.fazenda.gov.br). Access is made with a Gov.br account of silver or gold level.

In e-CAC, access the option “My Income Tax” and check the processing status. Possible statuses are:

1. In processing: the IRS is still analyzing.
2. Processed: return accepted without issues.
3. In audit: your return was held for verification.
4. With issues: irregularities identified that need attention.

If audited, the system will show which issue was identified, which helps understand the problem.

What to Do if Your Return is Held

Was your return audited? Don’t panic. There are ways to resolve the situation:

1. Access e-CAC and identify the issue: the system informs which information diverges and the source of the discrepancy.
2. Gather supporting documents: receipts, invoices, statements, income reports — everything that supports what was declared.
3. Evaluate if there is an error in your return: if you made a mistake, the way forward is to submit a corrective return before being summoned to provide explanations. Correcting on your own initiative reduces or eliminates penalties.
4. If there is no error, wait for the summons: you can present documents that prove what you declared in a scheduled interview at the IRS.
5. Consider the assistance of an accountant or tax attorney: especially if the amount involved is significant or if the situation is complex.

It is important to know that the corrective return can be submitted at any time, as long as the IRS has not yet started a formal audit procedure. After the official summons, the rules change.

Best Practices to Avoid a Tax Audit

The best strategy is prevention. Adopt these practices before submitting your return:

• Gather all income reports before starting to declare: employers, banks, brokers, private pensions, health plans. Request them in advance — the law requires they be delivered by the last day of February of the year following the fiscal year.
• Use the IRS pre-fill with attention: the system imports data automatically, but you need to review everything. Do not assume that the pre-filled data is complete or correct.
• Keep all receipts and invoices for deductible expenses for at least 5 years — this is the statute of limitations for the IRS to collect tax.
• Declare all income, even small or occasional work. The IRS has access to an increasing amount of information.
• Check CPFs and CNPJs of dependents and healthcare service providers before entering expenses.
• For investments, know that fixed income earnings, dividends, and capital gains have specific rules. See how to declare investments correctly in How to declare investments in your income tax return.
• If in doubt, consult an accountant. The cost of preventive advice is usually much lower than solving a problem after being audited.

Deadlines and Financial Consequences

Returns held in audit have refunds blocked until the situation is resolved. Additionally, if the IRS concludes that there is unpaid tax, the taxpayer will be subject to:

• Official fine: generally, 75% of the unpaid tax amount, which can reach 150% in cases of fraud. Check the current tables on the IRS website, as these percentages may be updated by legislation.
• Interest: calculated based on the accumulated Selic rate since the tax due date. To know the current Selic rate, consult the official website of the Central Bank of Brazil (bcb.gov.br), as it is periodically set by the Monetary Policy Committee (Copom).

In other words, in addition to the tax that should have been paid, you may end up paying a significantly higher amount. Regularizing the situation as soon as possible, especially on your own initiative, is always the most economical decision.

Conclusion: Transparency is the Best Approach

A tax audit is not a trap set to punish well-meaning taxpayers — it exists to ensure that the information declared is consistent with reality. For those who file carefully, gather the appropriate documentation, and understand the rules of deductions and income, the risk of being audited is low.

The key is to treat the income tax return as a process that begins well before the final deadline: keeping documents throughout the year, requesting reports in advance, and reviewing each field before submitting. In case of doubt, investing in professional guidance pays off quickly.

The IRS provides a free filing program, the e-CAC portal, and a virtual service that can answer basic questions. Take advantage of these resources — they exist to facilitate the correct and surprise-free fulfillment of tax obligations.

This content is for educational and informational purposes only and does not constitute investment advice, legal, or personalized tax advice. Tax rules may be changed by legislation; always check the current regulations on the official IRS channels. For financial and tax decisions specific to your situation, consult an accountant, tax attorney, or financial advisor registered with CVM.