As tax season approaches, many taxpayers are wondering if the IRS will be auditing more returns this year. The answer is yes, but the increase in audits will be focused on high-income earners, partnerships, and corporations. The IRS is also planning to increase its scrutiny of tax preparers who help clients claim the Earned Income Tax Credit (EITC).
Why is the IRS increasing audits?
The IRS is increasing audits in an effort to close the tax gap, which is the difference between the amount of taxes owed and the amount of taxes actually collected. The tax gap is estimated to be $441 billion for 2021.
The IRS believes that it can close the tax gap by increasing audits of high-income earners, partnerships, and corporations. These taxpayers are more likely to have complex tax returns that are difficult to audit. The IRS is also planning to increase its scrutiny of tax preparers who help clients claim the EITC. The EITC is a refundable tax credit for low- and moderate-income working individuals and families. The IRS believes that some tax preparers are helping clients claim the EITC fraudulently.
Who is most likely to be audited?
The IRS is more likely to audit taxpayers who:
- Have high incomes
- Are partnerships or corporations
- Have complex tax returns
- Claim the EITC
- Have been audited in the past
What can you do to avoid an audit?
There are a few things you can do to avoid an audit:
- File your taxes accurately and on time.
- Keep good records of your income and expenses.
- Be prepared to provide documentation to support your tax return.
- Avoid making errors on your tax return.
- If you are audited, be cooperative and provide the IRS with the information it requests.
What should you do if you are audited?
If you are audited, you should:
- Contact the IRS as soon as possible.
- Gather your records and documentation.
- Be prepared to answer questions about your tax return.
- If you disagree with the IRS’s findings, you can appeal the audit.
The IRS is increasing audits in an effort to close the tax gap. The IRS is more likely to audit taxpayers who have high incomes, are partnerships or corporations, have complex tax returns, claim the EITC, or have been audited in the past. You can avoid an audit by filing your taxes accurately and on time, keeping good records, and being prepared to provide documentation to support your tax return. If you are audited, you should contact the IRS as soon as possible, gather your records and documentation, be prepared to answer questions about your tax return, and appeal the audit if you disagree with the IRS’s findings.
What the IRS is actually looking for that could trigger a tax audit
FAQ
Is the IRS going to audit more?
Who gets audited the most by the IRS?
How many times can the IRS audit you in a year?
Does the IRS have a higher audit rate?
The IRS didn’t immediately comment on the TRAC report, but it pointed to a blog post about audit rates. Taxpayers with incomes of more than $10 million had “substantially higher audit rates” than those in every other income category from 2010 to 2015, the agency noted.
Why are IRS audit rates so low?
Internal Revenue Service (IRS) officials attributed this trend primarily to reduced staffing as a result of decreased funding. Audit rates decreased the most for taxpayers with incomes of $200,000 and above. According to IRS officials, these audits are generally more complex and require staff’s review.
Are IRS audit rates increasing or decreasing?
Audit trends vary by taxpayer income. In recent years, IRS audited taxpayers with incomes below $25,000 and those with incomes of $500,000 or more at higher-than-average rates. But, audit rates have dropped for all income levels—with audit rates decreasing the most for taxpayers with incomes of $200,000 or more.
What is the IRS audit rate?
One statistic of much interest is the audit rate, or the percentage of returns filed by taxpayers which are subject to examination. This statistic is also one of the most dynamic of the data the IRS reports.