A recent report finds the rate of audits conducted by the Internal Revenue Service (IRS) is on the decline. This is particularly surprising when taking into account the tax gap, or difference between the amount of taxes the Internal Revenue Service (IRS) should have collected and the amount actually collected from taxpayers is 82%.
This means approximately $458 billion in tax obligations goes unpaid every year. It would seem reasonable for the IRS to increase audits to attempt to recoup these funds. Yet the data shows this is not the case.
What is the current audit rate? The federal agency audited 0.59% of tax returns in 2018. This is the lowest rate in over 15 years.
Why is the audit rate decreasing? Budget cuts have led the agency to reduce its staff. As a result, fewer agents are available to review tax returns and conduct audits.
Does this mean audits are easier to navigate? No. Unfortunately, those who go through an audit do not report kindly on the process. A piece by Forbes notes taxpayers reported feeling “fear, anger, threat and caution” towards the IRS after an audit.
As a result, taxpayers audited by the IRS are wise to act to protect their interests.
What does this mean for the future of audits? The current administration has called on the agency to increase its efficiency and use technology to help better ensure those who are not meeting their tax obligations are caught.
The Wall Street Journal reports President Donald Trump aims to increase the agency’s budget. More funding could lead to more agents and a higher audit rate in the future. We will watch this development and provide updates as they become available.