The audit rate, the percentage of individuals’ tax returns IRS agents examined either face-to-face or via correspondence dropped to 0.7% in federal fiscal year 2016, the lowest since 2003, updated data from the nation’s tax agency shows.
The continued decline coincides with reductions of IRS personnel who conduct audits and comes amid preliminary Trump administration budget plans that could further cut the enforcement staffing.
Mathematically, the audit rate “means that it’s not too likely,” said Sylvain Cappell, a New York University mathematics professor who calculated the probability at 1-in-143 at the request of USA TODAY. “On the other hand, it’s something that still could happen.”
Although higher-income earners generally face relatively higher audit percentages, those rates also have dropped to more-than-decade-long lows. For those whose annual income is $200,000 or more, the 2016 audit rate was 1.7%. Taxpayers whose income totaled $1 million or more faced a comparable rate of 5.8%.
Business filers face similarly declining chances of being audited. In all, 0.49% of federal tax returns filed by small and large corporations, partnerships and so-called subchapter S returns were audited last year, the IRS data show. That represents the lowest rate since the 0.36% rate in 2004.
“Despite these declines, taxpayers should keep in mind the IRS still audited more than 1 million tax returns last year,” IRS Commissioner John Koskinen said in a statement Monday. “Spinning the roulette wheel and risking an audit is a chance taxpayers don’t want to take. Cutting corners on a tax return can be an expensive bet for taxpayers considering the unpaid tax, penalties and interest that can result from an audit.”
However, a tax expert who regularly represents clients on IRS-related issues offered a decidedly different perspective.
“The significance is it’s a good time to be a tax cheat in this country,” said Robert McKenzie, an Arnstein & Lehr law firm partner in Chicago who has been critical of cuts in IRS funding and enforcement staffing.
The combined number of revenue officers, revenue agents and special agents fell to 15,914 last year, continuing a now seven-year decline. The total represents a roughly 30% drop from 2010, the last time the audit staffing increased.
IRS funding has dropped in four of the six years since 2010, the agency’s data show. But the increase to $11.2 billion last year was earmarked for reversing much-criticized drops in taxpayer service.
A roughly 14% cut in IRS funding for the fiscal year that starts in October could mean additional declines in enforcement staffing and audits.
Article Created by USA Today March 6 2017