The words "IRS audit" strike fear into the hearts of many taxpayers. We've all heard horror stories about "audits from Hell" that leave taxpayers exhausted and broke. To help scare people into filing, around tax time every year the IRS makes sure to publicize its audits of famous people. But what are the real odds of getting audited? Surprisingly low for most people.
Here's a breakdown by income of the percentage of individual returns audited by the IRS in 2011:
Adjusted Gross Income Audit Rate
|No adjusted gross income||3.42%|
You can see from these statistics that the odds of a person who earns $25,000-$100,000 per year being audited are less than 1%. Oddly, people who make less than $25,000 have a higher audit rate. This is because many of these taxpayers claim the earned income tax credit and the IRS conducts many audits to ensure that the credit is not being claimed fraudulently.
In the past IRS audits were far more common. In 1963, an incredible 5.6% of all Americans had their tax returns audited. Everybody knew someone who had been audited. Jokes about IRS audits were a staple topic of nightclub comedians and cartoonists.
There are several reasons for the change:
According to the IRS Oversight Board, the IRS does not have the resources to pursue at least $30 billion worth of known taxes that are incorrectly reported or not paid. In 2005, the nation’s “tax gap”—the total inventory of taxes that are known and not paid—was estimated at $345 billion.
Does this mean you can always get away with cheating on your taxes? Absolutely not. The IRS uses sophisticated computer algorithms to decide on which returns to audit. If your return looks strange, your chances of being audited go way up. For example: