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Overall Audit Odds Increasing for Individuals

It’s hard to not feel guilty if your tax return is audited by the IRS, even if you have done everything right.
 Be on notice: the random selection IRS audit process is raising the odds against individual taxpayers.

Warning sign graphicNumbers show the odds that your individual tax return will be audited have increased every year
for the last ten years, except for 2012. 

The most recent tax statistics show for individual taxpayers making less than $200,000 a year, the chances of being audited in 2001 were .58 out of 100--and have now grown to 1.02 out of 100 individual tax returns filed for 2011 income taxes.

The publicly released IRS Fiscal Year 2012 Enforcement and Service Report reveals the audit probabilities dropped a bit last year (for 2012 tax returns) to .94 out of 100 returns as many taxpayers voiced concerns about the increasing rates of audits.

The audit enforcement reports have to do with tax returns for multiple tax years compared against numbers for the most current tax year filings.   So, experts say, even with the slight dip in 2012, results show an upward trend continues.

Overall, nearly 14 million taxpayers have been audited in the last ten years.  The chances of being audited are much higher for taxpayers who earn more income:

                    Income less than $200,000 = .94 out of 100 returns

            Income $200,000 to $999,999 = 3.7 out of 100 returns

                Income $1 million and above = 12.14 out of 100 returns

The data also shows the percent of audits on business returns continues to rise.  In 2012, .71% of small businesses, 1.12% of small corporations (assets under $10 million), and 17.78% of large corporations ($10 million+) were audited.  Each of these audit percents are up from the previous year.

Receiving an inquiry from the IRS doesn’t mean you are accused of a violation. Yet, you will bear the cost for proving your reported income and deductions are right should you need to involve a professional to handle your response.

If you can’t afford representation, a taxpayer advocate service is available.  The form to request such help is, no joke, Form 911.

The most common form of audit notice is an IRS Correspondence received in the mail.  You are asked to submit answers in writing or may be asked to visit with an agent.  Another type of audit, a Field Audit, may include an auditor conducting an on-site visit to a business where the auditor(s) will comb through records.

Here's more numbers to ponder from the IRS Fiscal Year 2012 Enforcement and Service Results Report. 

Total IRS Audits 2012 Individual Tax Returns:

Individual                     1,481,966

Small Business                  70,265

Small Corporation           21,164

Large Corporation           10,752

Total IRS Enforcement Revenue Collected Including all Tax, Interest and Penalties collected:

Fiscal Year 2011:   $55.2 Billion

Fiscal Year 2012:  $50.2 Billion

Total collected from audits since FY2002:  $ 538 Billion

Should you be audited or have a question, contact us at McRuer CPAs.  When dealing with the IRS, it’s better to be safe, than sorry.


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