IRS audit rates declined last year for the sixth year in a row and are at their lowest level since 2002, the agency reported. That’s good news for people who don’t like to be audited (which is everybody)!
Low statistics for audit examinations obscure the reality that you may still have to deal with issues caught by the IRS’s automated computer systems. These could be math errors, typos or missing forms. While not as daunting as a full audit, you need to keep your records handy to address any problems.
Average rates are declining, but audit chances are still high on both ends of the income range: no-income and high-income taxpayers.
No-income taxpayers are targets for audits because the IRS is cracking down on fraud in refundable credits designed to help those with low income, such as the Earned Income Tax Credit (EITC). The EITC can refund back more than a low-income taxpayer paid in, so scammers attempt to collect these refund credits through fraudulent returns.
High-income taxpayers have increasingly been a target for IRS audits. Not only do wealthy taxpayers tend to have more complicated tax returns, but the vast majority of federal income tax revenue comes from wealthy taxpayers. Based on the statistics, the very highest income taxpayers can assume they will be audited about every six years.
Complicated returns are more likely to be audited. Returns with large charitable deductions, withdrawals from retirement accounts or education savings plans, and small business expenses and deductions are reportedly more likely to be the subject of an audit.