What Are Your Chances of Being Audited? IRS Data Book Provides Some Cluesby
The IRS has issued its annual data book which provides statistical data on activities conducted by the IRS from Oct. 1, 2015, to Sept. 30, 2016, including on returns filed, taxes collected, enforcement, taxpayer assistance, and the IRS’s budget and workforce.
In addition, the data book provides valuable information about how many tax returns the IRS examines (audits) and what categories of returns the IRS is focusing resources on, as well as data on other enforcement activities, such as collections.
During fiscal year 2016, the IRS collected more than $3.3 trillion in revenue and processed over 244.2 million returns and supplemental documents. More than 168.8 million returns and other forms were filed electronically, representing 69.1 percent of all filings – an increase of 1.9 percent over the share of electronic filing in FY 2015.
Of the nearly 149 million individual income tax returns filed, 131 million were electronically filed. More than 120 million individual income tax return filers received a tax refund, which totaled over $366.6 billion. On average, the IRS spent 35 cents to collect $100 in tax revenue during the fiscal year.
What Are the Chances of Being Audited?
During FY 2016, the IRS examined 0.6 percent of all returns filed in calendar year 2015, about 0.7 percent of all individual income tax returns filed in CY 2015, and 1.1 percent of corporation income tax returns (excluding S corporation returns). Overall, in FY 2016, individual income tax returns in higher adjusted gross income (AGI) classes were more likely to be examined than returns in lower AGI classes.
Of the 1,034,955 individual income tax returns audited in FY 2016, roughly 36.7 percent (380,260) were selected for examination on the basis of an Earned Income Tax Credit (EITC) claim. Only 23.6 percent of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners, and revenue officer examiners. The 76.4 percent balance of the audits were correspondence audits.
The following are selected audit rates:
- For business returns (for individuals not claiming the EITC and for other than farm returns) showing total gross receipts of $100,000 to $200,000, 2.2 percent of returns were audited in FY 2016, down from 2.5 percent in FY 2015.
- For business returns (for individuals not claiming the EITC and for other than farm returns) showing total gross receipts of $200,000 or more, 1.9 percent of returns were audited in FY 2016, a decrease from 2 percent in FY 2015.
- Of the returns showing farm (Schedule F) income, 0.4 percent were audited in FY 2016 versus 0.3 percent in FY 2015.
- For nonbusiness returns showing total positive income of $200,000 to $1 million, 1 percent of returns were audited (down from 1.8 percent for the previous year); for business returns, 2.3 percent of such returns were audited (down from 2.9 percent for the previous year). In general, total positive income is the sum of all positive amounts shown for the various sources of income reported on the individual income tax return and, thus, excludes losses.
- For FY 2016, the audit rate for returns with total positive income of $1 million or more was 5.8 percent, down from the 9.6 percent rate for FY 2015.
For all corporate returns (other than Form 1120-S), the audit rate in 2016 was 1.1 percent (down from 1.3 percent in the previous year). For small corporations with balance sheet returns showing total assets of:
- $250,000 to $1 million, the rate was 1 percent (1.2 percent in FY 2015).
- $1 million to $5 million, the rate was 1 percent (1.1 percent in FY 2015).
- $5 million to 10 million, the rate was 1.6 percent (1.5 percent in FY 2015).
For large corporations with returns showing total assets of:
- $10 million to $50 million, the audit rate was 4.7 percent (5.8 percent in FY 2015).
- $50 million to $100 million, the rate was 10.3 percent (11.3 percent in FY 2015).
- $100 million to $250 million, the rate was 11.1 percent (14.2 percent in FY 2015).
- $250 million to $500 million, the rate was 12.2 percent (14 percent in FY 2015).
- $500 million to $1 billion, the rate was 13.9 percent (17 percent in FY 2015).
- $1 billion to $5 billion, the rate was 19.5 percent (23.6 percent in FY 2015).
- $5 billion to $20 billion, the rate was 35.7 percent (36.1 percent in FY 2015).
- $20 billion or more, the rate was 78 percent (64 percent in FY 2015).
Catherine E. Murray is a senior tax analyst with Thomson Reuters Checkpoint within the Tax & Accounting business of Thomson Reuters. Catherine is a federal tax generalist who focuses primarily on writing current awareness tax news...