I Asked ChatGPT Which Tax Moves Put You on the IRS Watch List — Here’s What It Said
Many federal agencies seem to have a watch list of criminals they’re hunting for — at least that’s what your prime-time TV viewing has taught you. You might assume that the IRS has a list of its most wanted tax evaders or people who lie on their returns. But surely, you’re not on that list. Right?
For You: What Your Tax Preparer Would Tell You If They Didn’t Have To Be Polite
Also See: 5 Signs You’re Losing Money Every Month — and How To Find the Leaks
I mean, the very concept of an IRS watch list spooked me, too. So I decided to ask ChatGPT about the tax moves that could land someone on the IRS’s radar. The AI was able to calm some fears while also pointing out a few easy mistakes that could put someone on the IRS’ radar — and not in a good way.
First, There Is No Formal 'Watch List'
ChatGPT started with assurances that you’re not likely to end up on an IRS most-wanted poster anytime soon.
“There’s no official public ‘watch list,’ but the Internal Revenue Service does flag returns that look unusual or high-risk compared to norms,” it wrote. “Certain aggressive or inconsistent tax moves are more likely to draw scrutiny or an audit.”
Surely, these aggressive or inconsistent moves must be high-level tax fraud — the kind of conduct you wouldn’t be capable of, even if you had a penchant for criminality. But that assumption isn’t entirely safe. Some of what ChatGPT described could happen accidentally, through sloppy tax prep or a lack of knowledge.
1. Large Deductions Relative to Income
The AI warned that if your deductions — particularly from charitable donations or business expenses — are unusually high compared to your income, the IRS could take notice.
For instance, reporting $50,000 in income but $30,000 in deductions might draw attention. Large write-offs for expenses that are difficult to substantiate can be especially problematic.
2. Claiming Consistent Business Losses
You’ve turned your passion for reselling vintage doilies on Etsy into a business. Or rather, you’ve tried to. But your business consistently loses money year after year — which may have the IRS questioning whether it’s actually a business at all.
“It’s common with side gigs, rental properties or ‘lifestyle’ businesses,” the AI wrote. “This falls under hobby loss rules.”
Under federal tax law, the IRS looks for a genuine profit motive, not just ongoing losses that conveniently offset other income.
3. Working in a High Cash-Income Industry
Unfortunately, if you work in a cash-heavy industry — like restaurants, salons or independent contracting — you may face extra scrutiny, even if you’re doing everything right.
“The IRS compares your income to industry averages, and big gaps can trigger review,” ChatGPT wrote.
Because cash income is easier to underreport, it’s also more closely monitored.
4. Not Reporting All Income (Especially 1099s)
This mistake is easy to make. You don’t get a tax form from that one client, and you’re too busy to track it down. You assume payments that come through apps like Venmo or PayPal don’t count. ChatGPT was quick to correct that thinking.
“The IRS gets copies of forms like W-2s and 1099s,” it wrote. “If you leave one out, its system usually catches it automatically.”
Describing this as one of the most common audit triggers, the AI isn’t trying to scare you. It just wants you to know that even small income mismatches can flag a return.
5. Large Crypto Activity Without Reporting
Just because your grandfather’s friend — who was a tax preparer years ago — doesn’t fully understand what “the crypto” is doesn’t mean the IRS isn’t tracking digital asset transactions. It very much is.
The IRS now requires taxpayers to disclose whether they engaged in crypto activity at all, and significant transactions that go unreported can raise red flags.
6. Claiming Dependents Incorrectly
If you’re claiming someone who also files independently, or you’re one of multiple people claiming the same dependent (talk about awkward), the IRS may have some questions for you.
So maybe double-check that anyone you’re claiming as your dependent is actually your dependent. And by maybe, I mean definitely.
7. Not Disclosing Foreign Accounts
Having overseas accounts may seem glamorous and chic. What’s not so chic? Failing to report them.
ChatGPT reminded me that foreign account disclosure is a serious compliance issue. Even accounts that generate no taxable income may still need to be reported, and the IRS takes noncompliance seriously.
The Bottom Line
While you can breathe a sigh of relief that your face won’t be staring down from wanted posters in post offices — because there is no formal IRS watch list — certain tax moves could still draw unwanted attention.
Most of these issues aren’t about fraud. They’re about mismatches, missing information and filings that fall outside statistical norms. Avoiding those mistakes can go a long way toward keeping your return off the IRS’ radar.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
More From MoneyLion: