United States: What Are The Chances Of Getting Audited By The IRS?

Last Updated: July 20 2016
Article by Sidney H. Goldin

Every year, the IRS audits roughly one percent of individual tax returns. However, your exact chance of getting audited depends strongly on your income level and on other individual factors.

How Does Income Affect Your Chance of Getting Audited?

Less than one percent of individuals who declare an adjusted gross income between $1 and $199,999 are audited by the IRS. Audit rates are much higher among individuals with incomes over $200,000, with more than 16 percent of returns declaring incomes of more than $10,000,000 being audited.

If you declare no adjusted gross income, your chances of getting audited are also higher than average. In 2014, the IRS audited just over five percent of these returns.

Of course, you shouldn't try to reduce your income to stay out of the gaze of the IRS. You just need to be aware that having a high income — or no gross adjusted income at all — increases your chance of hearing from the IRS.

What Else Increases Your Chance of Getting Audited?

The IRS looks for signs of dishonesty when deciding which tax returns to audit. Every 1099 and W-2 you receive goes to the IRS, so there is no point in trying to leave income off your tax return — the IRS will know.

High deductions increase your risk of being audited. Don't avoid making deductions that you are entitled to make, but be aware that you might have to justify them.

People who file by hand are more likely to be contacted by the IRS regarding their tax affairs. This could be because filing by hand opens up more opportunities to make errors on your tax forms, such as leaving a required field blank by mistake. If you decide to file by hand, double or triple-check your return to ensure it is error-free.

Self-employed people are more likely to face an audit. In particular, sole proprietors filing a Schedule C return are more likely to be audited than people running their companies as part of a partnership or multimember LLC. In addition, large corporations are more likely to be audited than small corporations.

Correspondence Audits and Field Audits

The IRS conducts two types of audits: correspondence audits, where you communicate with the IRS investigators in writing, and field audits, where you must have a face-to-face meeting with an auditor.

Most people find correspondence audits far less intimidating than field audits. All you need to do is respond to letters you receive from the IRS and provide all requested documentation. In 2014, 71 percent of all individual taxpayer audits were correspondence audits.

If you run a business, you are more likely to face a field audit. In 2014, 92 percent of C corporation audits, 91 percent of S corporation audits and 67 percent of partnership audits were field audits. In this kind of audit, you are required to meet an auditor in your home, at your business premises or in a local IRS office. You have the alternative of sending your tax professional in your place if you prefer.

What to Do If You Receive a Letter from the IRS or an Agent Comes Knocking at Your Door

If you receive a letter notifying you that you've been chosen for an audit, don't panic. Unless you intentionally set out to deceive the IRS, it's unlikely that you will be in serious trouble. However, it is advisable that you do not meet with the IRS alone. Hire a qualified professional who can respond to the notice, especially if it arrives certified return receipt. Failure to respond can get you in severe trouble. If the officer arrives at your home or place of business, you are under no obligation to speak to the IRS representative. Indicate that you are hiring someone to serve as your legal representative and all further contact should be directed to that individual. That representative should be a CPA or a lawyer experienced in dealing with the IRS. (See video: Four Rules when Dealing with the IRS)

In the interim, you should check which return the audit notice refers to. The IRS has up to three years to initiate an audit from the date when your return was due, so the letter you received could refer to a return other than the one you most recently submitted.

Next, check which items on your return the IRS wants to know more about. The letter you receive will usually let you know which records you need to provide to support the claims you made on your return. For example, if the IRS questions a charitable deduction on your return, you'll probably be asked to provide some record of having made the donation, such as a bank statement or a receipt from the charity.

If the IRS suspects that you have under reported your income, you may be asked to provide bank records. Gather together records for all your bank accounts for the period covered by the tax return.

Obviously, it's easier to understand what the problem is if you have your tax return in front of you. If you can't find your tax return, call the IRS office and ask for a copy. If you're missing records that you need to support your case, prepare to explain why you don't have them.

Conclusion

Dealing with an IRS audit is stressful and time-consuming. Hiring a qualified experienced CPA or attorney will give you peace-of-mind that your case is being handled in a timely, professional manner.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Brown Smith Wallace
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Brown Smith Wallace
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions