I won't keep you in suspense. The IRS audits less than 1% of all tax returns. However, this doesn't tell the whole story. There are several factors that can increase or decrease your chances of being audited, such as your income and whether or not you apply for certain alert deductions.
With that in mind, here's a comprehensive analysis of how likely you are to receive a letter or phone call from the IRS about your tax return. In addition, three-quarters of all audits are correspondence audits in which the IRS sends the taxpayer a letter in the mail asking them about one or two issues. The IRS did not immediately comment on the TRAC report, but noted a blog post on audit rates. The risk of being audited by the IRS has been declining for years due in part to the shrinking workforce.
Its audit rate, about 0.44%, is low because its statements have less room for error, says Glenn DiBenedetto, director of tax planning at the New England Investment and Retirement Group. To help scare people into filing their returns, the IRS makes sure to publish its audits of famous people every year around the time they pay taxes. With the reduction of IRS staff, all income groups have experienced a decline in their audit rates, although the rich have enjoyed a steeper reduction than the poor. With fewer agents available, the audit rate has been steadily declining, even for millionaires, TRAC said.
According to the TRAC, more than half of the correspondence audits initiated by the IRS last year involved low-income people who applied for the Earned Income Tax Credit (EITC). It may seem counterintuitive that low-income households are more likely to be audited than some wealthier taxpayers, but that's because the IRS checks for fraud and errors related to the earned income tax credit, says Eric Bronnenkant, tax director at the financial services firm Betterment. This higher rate is because many of these taxpayers apply for the earned income tax credit, and the IRS conducts many audits to ensure that the credit is not being requested in a fraudulent manner. Taxes are one of the certainties of life, but nowadays it's less and less certain that the IRS will audit them.
Taxpayers who undergo a mail audit often can't contact a single point of contact when they call the IRS for answers or to locate the information they sent to the agency, Collins wrote. This group is five times more likely to be audited by the IRS than everyone else, according to a new analysis of IRS data by Syracuse University's Transactional Records Access Clearinghouse (TRAC). Still, focusing on auditing low-wage workers raises the question of efficiency and fairness, Long said. The reason is the increase in what is known as correspondence audits, a review of a tax return that is normally processed by the IRS through letters and phone calls, as opposed to in-person audits, which tend to be more complex.
However, the higher rate of audits among poor taxpayers also raises questions about equity and whether it represents the best use of resources, said Susan B.