Seriously, what are my chances of an IRS audit?
As part of my tax practice in Lake Nona, a community within Orlando, FL "the City Beautiful", I see a lot of clients who are nervous about an IRS audit. This is one reason I offer audit assistance with my tax preparation services. Additionally, I help many taxpayers who are having problems with the IRS or have tax debts and owe the IRS money.
Lots of taxpayers want to know what the chances are that their tax return will be selected by the IRS for an audit. That question can depend on a a few different factors, including income level and types of information included in your tax return. There are also different types of IRS audit, or IRS examination:
Correspondence examinations are done through the mail.
Field examinations involve face-to-face interaction, typically at your home or business.
Office examinations are conducted in an IRS office.
The IRS typically has three years from the due date of the return or the date you filed the return, whichever is later, to select your tax return for examination. Therefore, tax year 2015 is the most recent year available with complete examination data since more recent years are still open to selection for examination.
Based on income level alone, here are the percentage of individual tax returns that were selected for examination (tax return for year 2015):
Returns showing $0 or negative income: 4.47% $1 - $25,000 0.66%
$25,000 - $50,000 0.40%
$50,000 - $75,000 0.53%
$75,000 - $100,000 0.49%
$100,000 - $200,000 0.47%
$200,000 - $500,000 0.55%
$500,000 - $1,000,000 1.13%
$1,000,000 - $5,000,000 2.39%
$5,000,000 - $10,000,000 4.39%
$10,000,000 and above 8.16%
As you can see, once your income goes above $500,000 you have a significantly higher chance of an IRS audit as your income increases. Also, those who report zero or negative income on their tax return also have a larger likelihood of facing an IRS examination.
As I mentioned before, specific items on your return can increase your risk of IRS examination as well. Tax Returns claiming the Earned Income Tax Credit are usually selected at a higher rate than those without it. One reason is because the IRS knows many taxpayers figure this credit incorrectly or claim it when they don't actually qualify for it. Another example is that tax returns with a Schedule C (sole proprietor or independent contractor) business, are selected at a higher rate than those without. Again, the IRS knows this is an area of significant under-reporting of taxable income and/or over-reporting of tax deductions.
If you are concerned about an IRS examination, it may put your mind a ease knowing a qualified professional prepared your tax return. If you or someone you know has been selected for IRS examination, have received a letter or notice from the IRS, or want a qualified CPA to prepare your return, please contact me.
-Brad
I enjoy helping individuals with tax preparation and tax planning as well as offering tax help to individuals dealing with tax debt, IRS liens, IRS levies, Wage Garnishments, etc. I also service businesses (including nonprofits and churches) by providing tax preparation and tax planning as well as consulting for accounting, bookkeeping, and other finance related questions. I live in Orlando, FL, but I serve clients all across the country. Schedule an appointment if you need assistance and take a look at the resource page.
6900 Tavistock Lakes Blvd Ste 400
Orlando, FL 32827
(407) 243-8678
Serving clients in Orlando, Lake Nona, Altamonte Springs, Apopka, Azalea Park, Celebration, Hunters Creek, Lake Buena Vista, Lake Hart, St Cloud, Winter Garden, Winter Park and via the latest technology remotely around the country.
*The blog posts (as well as the YouTube channel) are my personal opinions and thoughts about a wide range of topics. They are not meant to apply to individuals specifically and should never be relied on as tax or investment advice. You should contact a professional for specific advice before taking action.