It's only normal to wonder about your chances of getting audited by the IRS. So, what's your chance? Pretty low according to recent IRS statistics.
Even the IRS admits its audit coverage rates are at a record low. They recently announced that their audit coverage rate for individuals fell 16 percent from FY 2015 to FY 2016. Their current audit coverage rate for individuals of 0.7 percent is the lowest in more than a decade.
Their audit coverage rate increased for higher income taxpayers, currently 1.7 percent for returns reporting more than $200,000 in income and 5.8 percent for returns reporting more than $1 million in income.
About 800,000 individual audits in FY 2015 were correspondence audits and about 240,000 were field audits of the nearly 148 million individual tax returns filed.
What about corporations?
The audit coverage rate for corporations (excluding S corporations - see below) for FY 2016 was 1.1 percent. There were about 19,000 field audits and 1,800 correspondence audits.
What about partnerships and S corporations?
The audit coverage rate for partnerships during FY 2016 was 0.4 percent, or about 15,000 of the 3.9 million partnership tax returns filed. The audit coverage rate for S corporations during FY 2016 was 0.3 percent, or about 16,000 of the 4 million S corporation tax returns filed.
However, the IRS Automatic Underreporter (AUR) Program continues to generate significant revenues for the federal government. More than 3.5 million cases were closed under this AUR Program, generating about $6.8 billion in additional income tax assessments.
Additionally, the IRS closed nearly 400,000 cases under its Automatic Substitute for Return Program, generating some $600 million in additional assessments.
Last year I represented one individual client selected for an IRS audit, and earlier this year I represented a corporate client. I also routinely help clients who receive an IRS notice demanding additional tax is owed. You should never accept an IRS notice of additional tax owed as being correct, and you should always have professional representation on an IRS audit.
There's definitely strategies to having a successful IRS audit outcome as my two clients learned who had me represent them.
Call or e-mail if you have any questions.
You may recall last month's e-newsletter included an article about my financial fitness favorites. It was based on my 35 years plus doing what I do and observing my clients' financial success.
