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IRS audit rates continues to decline

The U.S. Census Bureau population clock estimates that there are more than 327 million Americans. At a net gain of one person every 14 seconds, our population continues to grow.

This generally translates to more tax returns – since 2010, the number has increased five percent. The IRS budget however has absorbed cuts or remained flat over than same time frame. In fiscal 2017, the Service audited 1.1 million returns (or .5 percent of those filed).

Focus remains on higher earners

The number of individual tax returns reporting more than $1 million in income increased about 25 percent between 2015 and 2017. These taxpayers continue to have the greatest chance of an audit.

But even in this group the rate of audits dropped from almost 10 percent in 2015 to 4.37 percent in 2017. With the loss of almost a third of its workforce over the past seven years, the IRS does not have the resources to review as many of these complex returns.

Audits of those who earned less than $200,000 also decreased, but not as much. The difference was less than a quarter percentage point down from .76 to .59 percent.

Document-matching software

These statistics do not include computer generated requests related to mismatched data. The totals for this program were 3.3 million cases with revenue of $6.6 billion.

While there may be fewer federal audits, the number of California state tax audits are holding constant and even increasing.

Individual income taxes make up nearly half of federal revenue, compared to corporate taxes that make up nine percent. Business audits also declined. Partnership audits were the only category that stayed consistent.

As we near the tax filing deadline - April 17 - do not panic and risk mistakes. If you have not had time to devote to taxes, request an extension to avoid the failure to file penalty. If you know you will owe taxes, you can also make a partial payment to reduce penalty and interest accumulation as well.

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