Worried the Augusta Rule might get you audited? You’re not alone—and you’re not wrong to ask.
Tax attorney John Hyre breaks it down after 30 years of experience, including real conversations with IRS agents and appeals officers.
In this video:
What actually triggers audits (spoiler: not the Augusta Rule)
Why documentation is your best defense
How our platform proactively protects you with CPA instructions and IRS-ready notes
What kind of business owner probably shouldn’t use the Rule
If you’re a high-earning business owner, this could be one of the cleanest ways to legally reduce your tax bill—when done correctly.
Transcript:
0:00
So, will using this rule get you
0:02
audited? First, let’s point out that if
0:04
you do get audited, we’re probably going
0:06
to win. Second, we don’t know what
0:09
causes IRS audits. They actually keep
0:11
their algorithm secret. So, we’re not
0:14
sure what causes audits. Now, we do a
0:18
talk to IRS agents. When there are
0:19
audits, and I’ve been doing this for 27
0:21
years, so I’ve spoken to a lot of
0:22
agents, a lot of IRS tax attorneys, a
0:25
lot of appeals agents. I have never seen
0:28
an audit caused by the use of the august
0:30
rule. Not once. It never came into play.
0:32
It was never a factor.
0:33
What will cause an audit again is a lot
0:35
of sloppy non-normal business practices.
0:39
And sadly, these are endemic across
0:41
business.
0:42
The only thing I’ve seen that during an
0:43
audit that was triggered by something
0:44
else, if it was poorly done, then it got
0:48
picked up during that audit. As we
0:50
mentioned in a different video, we are
0:52
actually going out of our way to
0:53
minimize the chance of an audit. that if
0:55
Skynet notices something it doesn’t
0:58
like, we have an explanation of why this
1:00
is legitimate built into the return. In
1:02
other words, we instruct your accountant
1:04
how to properly report this so that
1:06
Skynet is less likely to be upset and
1:09
that once Skynet looks at it and decides
1:11
it wants an audit. Now, we don’t think
1:13
that’ll happen, but let’s say it does.
1:14
We have to plan for all contingencies.
1:16
There’s a note on the return explaining
1:18
to the IRS agent that reviews the return
1:21
because when Skynet triggers an audit,
1:23
an IRS agent normally reviews it. And
1:25
there’s a note explaining what we did
1:27
and why and why it’s legal and why it
1:30
makes sense. So, can I guarantee it
1:32
won’t trigger an audit? No. We’ve never
1:34
seen it happen. And I would add that
1:36
even anecdotally, so we talk to a lot of
1:38
retired IRS agents. We get on the CPA
1:41
boards and talk to people and ask what
1:44
truly causes audits because again during
1:46
an audit when you ask an agent what
1:48
caused an audit 95% of the time they
1:51
will tell you and we’ve never heard
1:54
directly in my case or anecdotally from
1:57
other professionals that this the
1:59
Augusta rule somehow caused an audit.
2:01
Could that change? Sure. Everything can
2:04
change. We can get nuked tomorrow. The
2:06
law can change. But presently, I have no
2:08
indications that it’s causing audits.
2:10
You do have to weigh as an entrepreneur
2:12
risks, right? That’s what you do every
2:14
day. Is this risk worth the reward or is
2:17
this over here too risky or or not risky
2:19
enough because I’m not making any money?
2:21
You’ve got to constantly weigh things.
2:23
And the August rule itself, you have to
2:25
look at, well, what benefit do I
2:27
receive? And is this worth the time and
2:29
effort? So, if you uh own a really teeny
2:32
home that will not rent for a lot of
2:34
money and you’re completely
2:36
disorganized, you probably shouldn’t be
2:38
doing this. You need to get things
2:39
organized. You need to be making profit
2:41
in your business and you need to have
2:44
books that can actually show you that
2:45
profit in the books. And at that point,
2:48
is the Augusta rule worth taking on? I
2:51
would certainly argue yes. It saves me
2:53
an enormous amount of money and it gives
2:54
me a built-in place where I conduct
2:57
focused business events at my home,
3:00
strengthening both my team and my
3:01
community.
