Every time when we start to get into tax season, the idea of being audited begins to circulate a little more. It is a concept that strikes immediate fear into many – and understandably so. It is something that feels like you can’t do anything about, you just must take it, and there is no way to see a good result.
Now this is true to some degree. There isn’t some magic door you can access that results in an audit ending before it begins. But first, as always, the best way to not worry about an audit is to submit a legitimate tax return. This doesn’t then allow you to say, “Oh no, Mr. IRS, I assure you my return is all on the up-and-up,” and have it go away, but you can go into the process with fewer worries about ending up with a giant new bill at the end of it.
Beyond that, though, the chances of actually being audited remain very low.
Last year, billions of dollars were budgeted to be allocated to the IRS for audit enforcement. Last week, though, we received word of the actual current state of audits and the chances of being audited in fiscal year 2022 decreased from the year before. The odds of an audit came out to 3.8 out of every 1,000 returns filed. This clearly isn’t an insignificant number, but if you were told something had a .38% chance of happening, how much mental space would you give it?
There are some situations that increase one’s tax return from being looked at a little deeper. Millionaires, for example, had a 2.8% chance of receiving some attention from the IRS (not necessarily a full audit). This makes sense, though, as those who make the most money are also potentially the ones who could be found to owe the most money.
The group with the highest audit rate, though, is actually low-income wage earners claiming an Earned Income Tax Credit. This isn’t because they traditionally underreport income, but they are a group where it is easy for the underfunded IRS to carry out a correspondence audit only (requiring no actual face-to-face time with the taxpayer). There are certainly arguments to be made here on both sides about where it’s best for the agency to place its efforts
This promises to be an evolving issue over the coming years as the IRS receives more of that increased funding and we find out just what they do with it. But for now at least, that’s a quick look at some of its recent moves.
Connect to Us ~ Facebook ~ Twitter
To ensure we don't make the folks at the IRS ornery, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.