“Based on ongoing examination activity, audit rates for income categories between $500,000 and $1 million doubled to 0.6%. Audit rates for the $1 million to $5 million category more than doubled to 1.3% and taxpayers earning more than $10 million jumped four times—reaching 8%,” the statement reads.
Yet less than 40 thousand of their returns were audited by the IRS in FY 2021 – just 4.5 out of every 1,000 of these returns[2]. This contrasts sharply with 13.0 out of every 1,000 of these lowest income returns that were audited last year by the IRS.
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.
Audit Rate
(Source: IRS Data Book, 2020.) Overall, the chance of being audited was 0.6%. This means only one out of every 166 returns was audited—the lowest audit rate since 2002.
The IRS is working to boost its audit rates for the wealthiest Americans, according to a statement recently released with the agency's annual Data Book, covering activities for the 2021 fiscal year.
The IRS did not change the federal tax brackets for 2022 from what they were in 2021. There are still seven in total: 10%, 12%, 22%, 24%, 32%, 35%, and a top bracket of 37%. However, the income thresholds for all tax brackets increased in 2022 to reflect the rise in inflation.
In the short-term, the IRS will continue to open additional audits in FY 2019 in the category of TPI of $10 million and over. At the end of FY 18, the IRS had 5,220 audits open in this TPI grouping and through May of FY 19, the IRS had increased the number of audits open by 200 in this TPI grouping.
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.
Does the IRS Catch All Mistakes? No, the IRS probably won't catch all mistakes. But it does run tax returns through a number of processes to catch math errors and odd income and expense reporting.
Red flags may include excessive write-offs compared with income, unreported earnings, refundable tax credits and more. “My best advice is that you're only as good as your receipts,” said John Apisa, a CPA and partner at PKF O'Connor Davies LLP.
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.
It's unlikely that the IRS will audit more taxpayers in 2021 because audits are trending downwards since 2010. In 2010, the IRS audited about 0.9% of tax returns, and in 2019, the IRS audited around 0.4% of tax returns.
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.
What Are the Chances of Being Audited? Americans filed just over 157 million individual tax returns in fiscal 2020. In the same year, the IRS completed 509,917 audits, making your overall odds of being audited roughly 0.3% or 3 in 1,000. IRS audits are conducted by mail and in person.
You cannot go to jail for making a mistake or filing your tax return incorrectly. However, if your taxes are wrong by design and you intentionally leave off items that should be included, the IRS can look at that action as fraudulent, and a criminal suit can be instituted against you.
In general, no, you cannot go to jail for owing the IRS. Back taxes are a surprisingly common occurrence. In fact, according to 2018 data, 14 million Americans were behind on their taxes, with a combined value of $131 billion!
The IRS does check each and every tax return that is filed. If there are any discrepancies, you will be notified through the mail.
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.
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.
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.
Staffing plans fell short
For example, as of March 15, 2022, the IRS had added 521 new employees to its Submission Processing unit, which was only 9.5% of its hiring goal of 5,473, TIGTA reported. Hiring was more successful in its Accounts Management function, meeting 76.5% of its goal of 5,000 more staff members.
The IRS conducts tax audits to minimize the “tax gap,” or the difference between what the IRS is owed and what the IRS actually receives. Sometimes an IRS audit is random, but the IRS often selects taxpayers based on suspicious activity.
Single Filers: The maximum deduction is reduced at $68,000 in 2022 (up from $66,000 in 2021) and is completely eliminated at $78,000 or more (up from $76,000). Married Filing Jointly: The maximum deduction is reduced at $109,001 (up from $105,001 in 2021) and is completely eliminated at $129,000 (up from $125,000).