An IRS audit is something no one ever wants to face. Audits mean gathering tax paperwork, answering personal questions about your income and expenses, and potentially facing a bill for back taxes, interest and penalties at the end of the process. If you’ve received notice of an IRS audit or find yourself owing money to the IRS due to an audit and wish to appeal the results, exploring your options for Boca Raton audit help services becomes very important.
The good news for many taxpayers, however, is it is not likely that you will ever be audited — although your chances may be greater in 2016. Unfortunately, if you’re one of the unlucky people who does get noticed by the IRS, you’ll want to take swift action to resolve your tax problems by retaining a qualified professional experienced in handling IRS audit matters.
Your Chances of an IRS Audit
CBS News looked at the likelihood of a taxpayer facing an audit. In 2010, there were 1.2 million audits of taxpayers conducted by the Internal Revenue Service. This meant about 1.1 percent of individual returns were audited. The IRS, however, has had significant budget cuts over the past several years. With less resources, the IRS has had to cut back on staff and limit operations. This, in turn, has resulted in fewer audits.
In 2014, there were more than 350,000 fewer audits compared with the number that were completed in 2010. Just .8 percent of individual tax returns were audited over the course of 2015. The IRS has both reduced the number of individual returns that it has audited and has reduced the number of business and corporate returns that it has audited.
This is changing in 2016, though. Accounting Today reports the IRS has found room in its budget and plans to hire between 600 and 700 additional enforcement employees to increase its audit rate. This will be the “IRS’s first significant enforcement hiring in more than five years,” which may be good news for the U.S. treasury but could be bad news for those who are worried about an audit.
With the total number of audits going up, not all taxpayers are equally at risk. Forbes explains that certain taxpayers are still much more likely than others to be audited. For example:
- People who are self-employed have more than double the chances of being audited. Between two percent and 2.5 percent of people who file a Schedule C with their tax returns will end up being audited.
- Low-income taxpayers who claim the earned income tax credit also face a higher chance of an audit, with a 1.7 percent audit rate for people with incomes below $25,000 who claim the earned income tax credit.
- High-income taxpayers have higher audit rates. There is a 1.8 percent chance of an audit for taxpayers earning between $20,000 and a million. The higher the income, the higher the chances of an audit. The audit rate for people earning incomes of $10,000,000 or greater is 16.22 percent.
- Corporations have a 1.3 percent audit rate, with large corporations more likely to be subject to an audit. A total of 11.1 percent of large corporations had their returns reviewed by the IRS, compared with .9 percent of small corporations. Corporations had a 64 percent audit rate if they had assets of $20 billion or higher.
While these taxpayers should be the most concerned about increased enforcement efforts, the fact the IRS is raising audit rates means all taxpayers need to be prepared to get the bad news that they are being audited. Those who do end up facing an IRS audit should explore options with East Coast Tax Consulting Group to minimize any adverse tax consequences.