Have you ever wanted to know what your chances are of being audited by the Internal Revenue Service? The IRS has issued its annual data book, which provides statistical data on activities conducted by IRS from Oct. 1, 2012, to Sept. 30, 2013, and includes information about returns filed, taxes collected, enforcement, taxpayer assistance and IRS's budget and workforce. In addition, the data book provides valuable information about how many tax returns IRS examines (audits) and what categories of returns IRS is focusing resources on, as well as data on other enforcement activities such as collections.
The annual book is jam-packed with information. For instance, during fiscal year 2013, the IRS collected almost $2.9 trillion in revenue. They also processed 240 million returns. The interesting part is that only 151 million of those were filed electronically. Out of the 146 million individual tax returns that were filed approximately 83% were e-filed. One the 118 million individual income tax return filers received a tax refund. Tax refunds told $312.8 billion. An interesting fact, is that on average the IRS spends 41 cents to collect $100 in tax revenue. This matches the low-cost results for 2008 and 2001.
Now for the good stuff. What are your chances of being audited? During fiscal year 2013, the Internal Revenue Service examined 0.8% of all returns of a filed in calendar year 2012. About 1% of all individual income tax returns were filed in calendar year 2012, and 1.4% of corporation returns were audited. Overall, individual income tax returns and higher adjusted gross income classes were more likely to be examined the returns and lower adjusted gross income class. This brings up an interesting point, the IRS does not seem to waste their resources on people in lower tax brackets. The reason for this, is that they can obtain more revenue through audited taxpayers with higher income. It’s a numbers game.
The next interesting fact is that the returns that were audited 24.5% were audited by revenue agents, tax compliance officers, tax examiners, and revenue officer examiners. 75.5% of the returns were audited were handled via correspondence audit. That means by the mail.
- For business returns (for individuals not claiming the EITC and for other than farm returns) showing total gross receipts of $100,000 to $200,000, 3% of returns were audited in FY 2013, down from 3.6% in FY 2012.
- For business returns (for individuals not claiming the EITC and for other than farm returns) showing total gross receipts of $200,000 or more, 2.7% of returns were audited in FY 2013, a decrease from 3.4% in FY 2012.
- Of the returns showing farm (Schedule F) income, 0.4% were audited in FY 2013 versus 0.5% in FY 2012.
- For nonbusiness returns showing total positive income of $200,000 to $1 million, 2.5% of returns were audited (down from 2.8% for the previous year); for business returns, 3.2% of such returns were audited (down from 3.7% for the previous year). In general, total positive income is the sum of all positive amounts shown for the various sources of income reported on the individual income tax return and, thus, excludes losses.
- For FY 2013, the audit rate for returns with total positive income of $1 million or more was 10.8%, down from the 12.1% rate for FY 2012.
For all corporate returns (other than Form 1120-S), the audit rate in 2013 was 1.4% (down from 1.5% in the previous year). For small corporations with balance sheet returns showing total assets of: $250,000 to $1 million, the rate was 1.3%; for $1 to $5 million, the rate was 1.4%; and for $5 to 10 million, the rate was 2.0%. For FY 2012, the percentages were, respectively, 1.7%; 2.1%; and 2.6%.
For large corporations with returns showing total assets of: $10 to $50 million, the audit rate was 7.0%; for $50 to $100 million, the rate was 15.5%; for $100 to $250 million, the rate was 19.4%; for $250 to $500 million the rate was 22.5%; for $500 million to $1 billion, the rate was 27.5%; for $5 billion to $20 billion, the rate was 60.9%; and for $20 billion or more, the rate was 91.2%. For FY 2012, the percentages were, respectively, 10.5%; 20.7%; 23.2%; 22.7%; 22.7%; 31.4%; 45.4%; and 93.0%.
It is really interesting to know what the facts are.
Craig Smalley is the managing partner of CWSEAPA®, LLP, which is an accounting and financial firm located in Delaware, Florida, and Nevada. Craig has been Admitted to Practice Before the Internal Revenue Service, is a Certified Estate Planner™, and is a Certified Tax Resolution Specialist™. Craig specializes in taxation and IRS representation all the way through the United States Tax Court. Form more information visit www.cwseapa.com, call 1-844-CWSEAPA, or email him at firstname.lastname@example.org
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