Taxpayer Audits Expected to Decrease in the Future

The job of IRS auditors has been made more taxing this year in part with budget cuts and new responsibilities. The result is likely to be a significant decline in total audits, as the IRS will have the fewest amount of agents auditing returns since at least the 1980’s.

That means that there is a proportionately smaller chance for a taxpayer to be audited than in previous years. This is significant considering that the IRS audited less than 1% of all returns from individuals last year, the lowest rate since 2005. The percentage is expected to drop even lower in part with an almost billion dollar reduction in budget for the current fiscal year. In addition to the smaller budget, the IRS is also faced with the daunting task of carrying out substantial new responsibilities tasked to the agency in part with the implementation of the Affordable Care Act, further chewing into available manpower.

The chances of getting audited vary depending on incomes. Higher earners are more likely to get a letter from the IRS saying they want to take a closer look. Only 0.9 % of people making less than $200,000 were audited last year. That’s the lowest rate since the IRS began publishing the statistic in 2006. By contrast, 10.9% of people making $1 million or more were audited, which still was the lowest rate since 2010. Only 0.6% of business returns were audited, but the rate varied greatly depending on the size of the business. About 16% of corporations with more than $10 million in assets were audited.

Still, individuals and companies must exercise caution as to appropriately and accurately report to the IRS. The agency may pay more attention to things commonly regarded as red flags due to the changes in operations.