What Are My Chances of Being Audited?
August 05, 2014
By Daniel Gibson, CPA
This is probably one of the most frequently asked questions by taxpayers. Your chances of getting audited depend on many factors. Do you have only wage, interest, and capital gain income and take the standard deduction? Your chances are probably less. If you take a large charitable contribution deduction, have a Schedule C, or own rental property, then your chances are likely to be higher. The same is true for business returns.
However, based upon new data from the IRS, the matrix for tax examinations over the past ten years has evolved. From 2011 to 2013, the number and percentage of audited returns has decreased pretty much across the board. For individuals with income of $200,000 or more, the number of audits did increase between 2012 and 2013, but the percentage of returns audited decreased. On the other hand for that group, the number of correspondence audits decreased, but the number of field audits increased. A field audit can be far more intrusive than a correspondence audit, which in some cases may be limited to a specific item such as charitable contributions.
You should keep in mind that 2013 was the year of sequestration. That put a crimp in many of the IRS programs. Future comparisons could show an increase in the audit rate -- or not -- if Congress cuts the IRS's budget as the House is trying to do.
While the numbers are interesting and give an idea of your overall chances of getting audited in a particular category, the IRS is more likely to pick your return because of a particular triggering item. A trigger could be charitable contributions materially in excess of the average for returns at your income level, or claiming a substantial deduction for property contributions. Property contributions beyond a certain amount require an appraisal, which are frequently challenged by the IRS. There are a host of others.
And while the IRS may be auditing a fewer percentage of returns, they're also auditing smarter. They're focusing on issues more likely to produce results for the government. States are also getting smarter; using computers to analyze data and entering into share agreements with the federal government. You could escape an IRS audit only to be trapped by your home state, or a state in which you do business.
Of course, none of the percentages matter if your return is picked. Just understand that playing the audit lottery has become more dangerous. If the IRS can assess the accuracy-related penalty, it will. That'll add 20% to your tax assessment. Interest and late-filing penalty assessments will also increase the total and it can add up quickly.
Best advice? If any government agents contact you, call a tax professional.