IRS audits and notices

IRS audits and notices

grim reaperThe good news though is that the amount of audits has gone down. In 2010 the audit rate for individuals was 1.1% and in 2015 it was .8%.  So 350,000 fewer people were audited in 2015 than in 2010.

You are more likely to receive a Notice than an actual Audit.  Notices are normally much easier and quicker to resolve.

The IRS is usually 2 years behind when they do an audit and most audits are done by mail rather than in person.  Right now, if you were to be audited, you would likely receive a letter concerning an audit of your 2015 tax return.   A letter audit is normally easier to resolve.  In a face to face field audit, the auditor can ask all sorts of questions that you aren’t immediately prepared for.

Although income alone is not the deciding factor on if you are selected to be audited, it does appear that income levels have something to do with the odds.  It seems that less than 1% of people with incomes under $200,000 get audited.  However, those with incomes between $0-$25,000 have a bit of a higher chance.  Incomes over $200,000 seem to have roughly 5 times as much of a chance to be audited. Those earning over $1,000,000 have a much higher chance of an audit, approximately 9.5%.  Those with no adjusted gross income have been audited at a rate of approximately 5%.

How do you get picked to get audited?  Here are a few things to know – computers utilize algorithms and your chances increase if…….

  • you normally file, but skip a year
  • your numbers drastically differ from those in your peer group
  • you have rounded numbers on your return (they look like estimates which are a no-no). Use actual numbers you can prove.
  • your numbers don’t agree to those on the tax docs filed with the IRS by others (e.g. Form W-2 or 1099)
  • your taxes were prepared by a preparer with an unusual amount of high refund clients

Some say you have a higher chance of an audit if there are certain deductions on your return such as Home Office.  There is no conclusive evidence of this.  Your best bet is to take the deductions you are entitled to and just make sure you have the documentation to prove them if necessary.

IRS Audits per the IRS.

Know your Taxpayer Bill of Rights when dealing with the IRS.

Linda Reinhardt

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