What Are My Chances of Being Audited?

    With this year’s tax season coming to a close, I have to say that this is probably one of the most frequently asked questions that I will get.

    The word AUDIT and various tax forms.
    The Feared Tax Audit!
    What are Your Chances of Being “Selected”?

    So, the IRS has just come out with new data for a ten-year period. In the tables below, I’ve reproduced data for the most recent three years for selected categories. Following the table is my brief analysis of the raw data. But keep in mind that these are just broad numbers. Your chances of getting audited depends on many factors. Have only wage, interest, and capital gain income and take the standard deduction? Your chances are probably much less than indicated. Take a large charitable contribution deduction, have a Schedule C, or rental property, and your chances are likely to be higher. The same is true for business returns.

    Individual Tax Returns

    Total Individual Tax Returns

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Field Examinations                 344,152      291,643      267,076           -  8.4
    Correspondence Audits            1,060,779      950,836      961,041              1.1
    Total Exams                      1,404,931    1,242,479    1,228,117           -  1.1
    Total Returns                  145,819,388  145,236,429  146,861,217              1.1
    Percent Audited                      0.96%        0.86%        0.84%
    
    

    Income Under $200,000

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Field Examinations                 270,636      234,758      214,678           -  8.6
    Correspondence Audits              932,336      848,451      851,256              0.3
    Total Exams                      1,232,972    1,083,209    1,065,939           -  1.6
    Total Returns                  140,537,584  139,369,439  140,642,631              0.9
    Percent Audited                      0.88%        0.78%        0.76%
    
    

    Income $200,000 and Higher

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Field Examinations                  73,516       56,885       52,398           -  7.8
    Correspondence Audits               98,443      102,385      109,786              7.2 
    Total Exams                        171,959      159,270      162,184              1.8
    Total Returns                    5,281,804    5,866,000    6,218,586              6.0
    Percent Audited                      3.26%        2.71%        2.61%
    
    

    Income $1,000,000 and Higher

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Field Examinations                  19,167       15,029       13,781           -  8.3
    Correspondence Audits               20,254       19,322       25,972             34.4
    Total Exams                         39,421       34,361       39,753             15.7
    Total Returns                      291,831      458,337      416,178           -  9.2
    Percent Audited                     10.85%        7.50%        9.55%
    
    

    Business Tax Returns

    Small Corporation Tax Returns (Assets Under $10 Million)

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Returns Examined                    17,604       17,257       16,460           -  4.6
    Returns Filed in Prior CY        1,849,758    1,812,140    1,797,360           -  0.8
    Percent Audited                      0.95%        0.95%        0.92%
    
    

    Large Corporation Tax Returns (Assets $10 Million and Higher)

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Returns Examined                     9,876        7,858        7,410           -  5.7
    Returns Filed in Prior CY           62,347       64,261       66,484              3.5
    Percent Audited                     15.84%       12.23%       11.15%
    
    

    S – Corporation Tax Returns

                                       FY 2013      FY 2012      FY 2015     % chg. 2014 to 2015
    
    Returns Examined                    18,670       16,317       18,595             14.0
    Returns Filed in Prior CY        4,476,307    4,518,765    4,605,766              1.9
    Percent Audited                      0.42%        0.36%        0.40%
    
    

    Partnership Tax Returns

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Returns Examined                    14,870       15,779       19,212             27.8
    Returns Filed in Prior CY        3,550,071    3,649,385    3,766,567              3.2
    Percent Audited                      0.42%        0.43%        0.51%
    
    

    Exempt Organization Tax Returns

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Returns Examined                    10,575        9,084        6,392           - 29.6
    Returns Filed in Prior CY          771,675      765,395      787,339              2.6
    Percent Audited                      1.37%        1.06%        0.81%
    
    

    Collection

    Enforcement Actions

                                       FY 2013      FY 2014      FY 2015     % chg. 2014 to 2015
    
    Levies                           1,855,095    1,995,987    1,464,026           - 26.7
    Returns Filed in Prior CY          602,005      535,580      515,247           -  9.4
    Seizures                               547          432          426           -  1.3
    
    

    Comments and Analysis

    From 2013 to 2015 the number and percentage of returns audited has decreased, pretty much across the board. But looking deeper, audits declined from 2013 to 2014 and went up slightly in 2015. For individuals with income of less than $1 million, the percent audited decreased from 2014 to 2015, mostly at the lower end. Individuals with income of $1 million or more saw an increase from 2014 to 2015, but still below the percentage in 2013. If your income is less than $200,000, your audit chances are 3/4 of 1 percent; $200,000 to $1 million your chances go up to 2.6 percent; over $1 million they’re almost 10%. In general, field audits (which involve a visit from an agent) are down, correspondence audits are where the increase occurred.

    The total number of partnership and S corporation audits increased substantially on a percentage basis (although the total number is relatively low). The percentage audited increased slightly from 2014 to 2015, but your chances of getting audited is still about 1/2 of 1 percent.

    But keep in mind that your chances of getting audited could be significantly higher–or lower. For example, Middletown Partners is a two-person partnership generating about $375,000 per year in revenue. Jack-Hammer LLC is a construction company with 50 employees and $7 million in revenue with $1 million in assets. Other things being equal, Jack-Hammer’s chances of an audit are much higher. The same for individuals. Fred and Wilma had income of only $126,000, but they have rental losses, and deducted property contributions to charity of $12,000. Ralph and Alice work on Wall Street and have a combined W-2s of $1.2 million. But they rent an apartment, have no kids, and no outside investments. Fred and Wilma’s audit chances are probably higher than Ralph and Alice. While the numbers are interesting and give you an idea of your overall chances of getting audited in a particular category, the IRS is more likely to pick your return because of a particular triggering item. That could be charitable contributions materially in excess of the average for returns at your income level or claiming a substantial deduction for property contributions. Property contributions beyond a certain amount require an appraisal which are frequently challenged by the IRS. Checking the box for real estate professional and fully deducting rental losses is almost sure to generate an inquiry. But don’t worry….there are a host of others.

    Keep in mind the IRS is also auditing “smarter”. They’re focusing on issues more likely to produce results for the government. And if that is not enough, the states are also getting “smarter” and using computers to analyze data. You could escape an IRS audit only to be trapped by your home state or a state in which you do business.

    Of course, none of the numbers above matter if your return is picked. Playing the audit lottery has become more dangerous. If the IRS can assess the accuracy-related penalty, it generally will. That could add 20% to your tax assessment. Interest will increase the total and, while relatively low, it can add up quickly.

    Best advice? Listen to your tax professional.

    Call Solid Tax Solutions at (845) 344-1040.

    We will help you during the entire stressful process.

    You can also learn more about us at our web site: SolidTaxSolutions.com

    ___________________________________________________________________________________________________

    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

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    Categories: Tax Audit

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