MLR

Tax return audits: The odds are in your favor

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What are your chances of being audited?

The IRS has issued its annual data book, which provides statistical data on its fiscal year (FY) 2012 activities. The data book provides information about how many tax returns the IRS examines, or audits, and what types of returns the IRS is focusing on.

Of the 143,399,737 individual tax returns filed for the 2011 calendar year, 1,481,966 were audited – roughly 1 percent of the total. Revenue agents, tax compliance officers, tax examiners and revenue officer examiners conducted only 24.3 percent of the individual audits. The other 75.7 percent of the audits were handled through correspondence between the IRS and taxpayers.

Other statistics included in the data book for FY 2012:

  • For business returns, other than farm returns, showing total gross receipts of $100,000 to $200,000, 3.6 percent of returns were audited.
  • For business returns, other than farm returns, showing total gross receipts of $200,000 or more, 3.4 percent of returns were audited.
  • Of the returns showing farm (Schedule F) income, 0.5 percent were audited.
  • For returns showing total positive income of $200,000 to $1 million, 2.8 percent of returns not showing business activity were audited, and 3.7 percent of returns showing business activity were audited.
  • The audit rate for returns with total positive income of $1 million or more was 12.1 percent.

Not surprisingly, the higher the income, the greater the chance of being audited. During FY 2012, the IRS examined:

  • 0.85 percent for those returns with adjusted gross income (AGI) between $100,000 and $200,000
  • 1.96 percent for those with $200,000 to $500,000 of AGI
  • 8.9 percent for those with at least $1 million but less than $5 million of AGI

Audit rates were even higher for those with at least $5 million but less than $10 million of AGI and for those with AGI of $10 million or more.

Select audit rates for business returns were as follows:

  • For all corporate returns other than S corporations (Form 1120-S), 1.5 percent
  • For corporations with balance sheets showing total assets of:
    • $250,000 to $1 million, 1.7 percent
    • $1 million to $5 million, 2.1 percent
    • $5 million to $10 million, 2.6 percent
  • For large corporations with balance sheets showing total assets of $10 million or more, the overall audit rate was 17.8 percent. The audit rate for these corporations increased with the size of the entity:
    • 10.5 percent for those with total assets of $10 million to $50 million
    • 22.7 percent for those with $250 million to $500 million
    • 45.4 percent for those with $5 billion to $20 billion
    • 93 percent for those with $20 billion or more
  • For partnership and S corporation returns, the audit rate was 0.5 percent.