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California and Colorado Are the Worst States for IRS Audits: Study

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Apr 14th 2015
Staff Writer and Editor AccountingWEB
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Residents of California and Colorado are more likely to be audited by the IRS than taxpayers in any other state, while New York and Massachusetts residents had the highest chance of an audit of their 2013 state tax return, according to a new study.

TaxAudit.com, a firm that specializes in tax audit representation services, analyzed 1.4 million US tax returns for the 2013 tax year for its study of the states with the highest chance of a tax audit.

According to a CNBC article, California is the worst state for IRS audits because it has the largest number of IRS offices of any state, making residents more likely to be targeted by federal auditors, TaxAudit.com found. Second-home rentals in Colorado make that state's residents a target for IRS audits.

“Even though you might not live in a highly audited state like California or New York, anyone can be audited at any time for any number of reasons,” Dave Du Val, vice president of customer advocacy at TaxAudit.com, said in a written statement. “Just because it’s last minute, it’s not worth cutting any corners. Remember to report all your income, make sure you truly qualify for the tax deductions you’re claiming, and always verify that your return was accepted by the IRS if you e-file. Plus it’s never too early to think about next year’s taxes: Get organized now, keep your receipts, and contribute to qualified retirement accounts.”

Rankings of the states with the most IRS audits and states with the most state audits are based on the percentage of 2013 TaxAudit.com Audit Defense users who were audited in 2014.

The 10 states with the most IRS audits are:

  1. California
  2. Colorado
  3. Nevada
  4. Vermont
  5. Missouri
  6. New Mexico
  7. Arizona
  8. Massachusetts
  9. Florida
  10. Rhode Island

The 10 states with the most state audits are:

  1. New York
  2. Massachusetts
  3. Alabama
  4. Delaware
  5. Michigan
  6. Mississippi
  7. Arkansas
  8. Oregon
  9. Montana
  10. Maine

Taxpayers in North Dakota were the least likely to be audited by either the IRS or state, the study found.

According to a recent article by the USA Today, the IRS audit rate – the percentage of individuals’ tax returns IRS revenue agents examined either in person or via correspondence – fell to 0.86 percent in 2014. That represents the lowest rate since at least fiscal year 2005.

After rising steadily from 2005 to 2010, the number of IRS audits for individual taxpayers fell 21.4 percent during the succeeding five years, according to IRS data. The IRS audited slightly more than 1.2 million individuals last year, down more than 162,000 from 2013, and a drop of nearly 339,000 from 2010.

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By Tallie
Jun 25th 2015 20:12 EDT

Excellent article! Being a resident of California definitely does have its complications when it comes to dealing with the IRS. We recently wrote a blog about IRS compliance that we think is relevant to your advice of needing to stay organized and timely. Check it out and let us know what you think - https://blog.usetallie.com/use...

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