Audits of the rich continue to drop while audits of the poor have stayed the same. When ProPublica mapped out the audit rates for every county in the U.S., it found that the counties with the highest audit rates were the poorest.
On the poorest households in America. The relevant statistics come to us via TRAC, a nonprofit research data center at Syracuse University. TRAC recently mined IRS statistics and determined that the agency audits households with less than $25,000 in income at five times the rate for anyone else.
Taxpayers with incomes of more than $10 million had "substantially higher audit rates" than those in every other income category from 2010 to 2015, the agency noted.
Audit trends vary by taxpayer income. In recent years, IRS audited taxpayers with incomes below $25,000 and those with incomes of $500,000 or more at higher-than-average rates. But, audit rates have dropped for all income levels—with audit rates decreasing the most for taxpayers with incomes of $200,000 or more.
Audits of Millionaires
While the ranks of millionaires have nearly doubled since FY 2012[5], the number of millionaire returns that were audited has actually fallen 72 percent - down from 40,965 millionaire audits in FY 2012 to just 11,331 in FY 2020.
To its credit last year, the IRS did manage to slightly raise the audits of millionaires. During FY 2021 IRS revenue agents and tax examiners audited 13,725 of taxpayers reporting $1 million dollars or more in positive income.
Tax audit triggers: You didn't report all of your income. You took the home office deduction. You reported several years of business losses. You had unusually large business expenses.
What is the chance of being audited by the IRS? The overall audit rate is extremely low, less than 1% of all tax returns get examined within a year. However, these nine items are more likely to increase your risk of being examined.
Middle-class Americans, listen up: the I.R.S. is much more likely to audit you this year. Those caught cheating can expect to pay about $4,100 more on average in income taxes.
What are the chances of being audited by the IRS? The answer may surprise you. On average, the chances a taxpayer will get audited are just 1 in 333. In other words, the IRS only audits 0.3% of tax returns.
Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.
If you get audited and don't have receipts or additional proofs? Well, the Internal Revenue Service may disallow your deductions for the expenses. This often leads to gross income deductions from the IRS before calculating your tax bracket.
Remember that the IRS will catch many errors itself
For example, if the mistake you realize you've made has to do with math, it's no big deal: The IRS will catch and automatically fix simple addition or subtraction errors. And if you forgot to send in a document, the IRS will usually reach out in writing to request it.
The Short Answer: Yes. The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
Criminal Penalty
If you deliberately fail to file a tax return, pay your taxes or keep proper tax records – and have criminal charges filed against you – you can receive up to one year of jail time. Additionally, you can receive $25,000 in IRS audit fines annually for every year that you don't file.
Fortunately, you don't need to worry about that happening. According to the IRS, most tax audits are regarding returns filed within the last three years. If they find a substantial error, they may add more years. But even then, they seldom go back more than six years.
The IRS does check each and every tax return that is filed. If there are any discrepancies, you will be notified through the mail.
Can the IRS audit you 2 years in a row? Yes. There is no rule preventing the IRS from auditing you two years in a row.
On the other hand, auditing the rich is hard. It takes senior auditors hours upon hours to complete an exam. What's more, the letter says, “the rate of attrition is significantly higher among these more experienced examiners.” As a result, the budget cuts have hit this part of the IRS particularly hard.
Walter Anderson
He was convicted of the largest tax evasion scam in U.S. history for evading more than $200 million in taxes.
Although the IRS doesn't pursue illegal tax evasion cases for most people, the penalty for the few who are caught is harsh. They have to pay the government what they owe, including expensive fraud penalties, and even face jail time.