From tax years 2010 to 2019, audit rates of individual income tax returns decreased for all income levels. On average, the audit rate for these returns decreased from 0.9 percent to 0.25 percent.
On average, individual tax returns were audited over three times more often for tax year 2010 (0.9 percent) than for tax year 2019 (0.25 percent). Audit rates for taxpayers with incomes between $200,000 and $500,000 saw the biggest drop (a 92% drop), from 2.3% in 2010 to 0.2% in 2019.
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.
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.
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.
The IRS Review Process: Every Return Is Reviewed by Computer
Once the data is in the system, a computer checks the return for errors, such as mathematical errors; if none are found, the return is processed, and the IRS issues you either a refund or a balance due notice.
Sometimes an IRS audit is random, but the IRS often selects taxpayers based on suspicious activity. We're against subterfuge. But we're also against paying more than you owe.
Key Takeaways. Your tax returns can be audited even after you've been issued a refund. Only a small percentage of U.S. taxpayers' returns are audited each year.
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.
While the chances of an audit are slim, there are several reasons why your return may get flagged, triggering an IRS notice, tax experts say. Red flags may include excessive write-offs compared with income, unreported earnings, refundable tax credits and more.
If the IRS finds that you were negligent in making a mistake on your tax return, then it can assess a 20% penalty on top of the tax you owe as a result of the audit. This additional penalty is intended to encourage taxpayers to take ordinary care in preparing their tax returns.
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.
If the IRS has shortlisted you for an audit, then you will be informed of this through a written notification that will be sent to your last recorded address. The IRS usually doesn't notify you of an audit via phone or email, so be wary of any email that claims to be about an IRS audit.
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.
What happens if you get audited and owe money? If you get audited by the IRS and owe money, you'll be notified of the additional tax that you're required to pay as well as any penalties and interest due. The correspondence that you receive from the IRS will mention a deadline by which you must pay.
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.
Audits can be bad and can result in a significant tax bill. But remember – you shouldn't panic. There are different kinds of audits, some minor and some extensive, and they all follow a set of defined rules. If you know what to expect and follow a few best practices, your audit may turn out to be “not so bad.”
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.
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.