What Are the Chances of Being Audited?

The words "IRS audit" have long struck fear into the hearts of American taxpayers. We've all heard horror stories about audits that leave taxpayers exhausted and broke. To help scare people into filing, the IRS makes sure to publicize its audits of famous people around tax time every year.

But what are the actual odds of getting audited? Shockingly low for most people. The number of IRS audits has been declining for years. Moreover, three-quarters of all audits are correspondence audits in which the IRS sends the taxpayer a letter in the mail asking about one or two issues.

However, due to increased IRS funding, audit rates may go up in future years for weathier Americans and businesses.

How Many 2019 Returns Were Audited Through 2022

The IRS has three years to audit most returns after they are filed. Here are the IRS statistics showing how many returns filed in 2019 were audited through 2022 when most audits for 2019 returns were completed.

(Source: IRS Data Book, 2022.)

Overall, the chance of being audited was 0.2%. So, only one out of every 500 returns was audited.

Who Is Audited More Often?

Oddly, people who make less than $25,000 have a higher audit rate. This higher rate is because many of these taxpayers claim the earned income tax credit, and the IRS conducts many audits to ensure that the credit isn't being claimed fraudulently.

Also, as you might expect, wealthy taxpayers are audited more often than the less affluent—after all, that's where the money is. But even millionaires are facing less IRS scrutiny. In 2019 through 2022, the IRS audited only 0.4% of taxpayers earning $1 million to $5 million. This rate was the lowest audit rate for millionaires since the IRS first began tracking it in 2004.

Why IRS Audits Have Declined

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.

Several reasons have contributed to plummeting IRS audit rates:

• a decline in the IRS budget—Congress has cut the IRS budget by 20% from 2010 levels
• a reduction in the IRS enforcement workforce by 38% since 2010
• an increase in the IRS workload
• emphasis on taxpayer service, rather than enforcement, and
• legal changes enacted in 1998 that made it more difficult for the IRS to go after tax cheats,
• the impact of the COVD-19 pandemic which resulted in the closure of IRS offices for months.

According to the IRS Oversight Board, the IRS doesn't have the resources to pursue at least $30 billion worth of known taxes incorrectly reported or not paid. The nation's "tax gap" (the total inventory of taxes that are known and not paid each year) was most recently estimated at $458 billion.

Are Increased IRS Audits Coming?

The bleak tax enforcement outlook might be about to change. In 2022, Congress passed the Inflation Reduction Act, which gave the IRS an additional $80 billion in funding over the next decade. This funding enables the IRS to add thousands of new employees and significantly upgrade its operations. This budget increase is the biggest the IRS has ever received.

Around $45 billion of the additional funding is earmarked for enforcement. The IRS plans to hire thousands of new revenue agents over the next several years so it can increase audits and other enforcement and collection activities. It will focus on larger businesses and high income indivduals—those making over $400,000 per year. One of the IRS's goals is to increase by tenfold audits of taxpayers earning $1 million or more.

So, Can I Get Away With Cheating on My Taxes?

The Treasury Secretary promises that audits of taxpayers earning less than $400,000 will stay at 2018 levels for the next several years. However, even if you earn far less than $400,000 don't assume that you can easily get away with wholesale cheating. 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:

• Returns with extremely large deductions in relation to income are more likely to be audited. For example, if your tax return shows that you earn $25,000, you are more likely to be audited if you claim $20,000 in deductions than if you claim $2,000.
• Certain types of deductions have long been thought to be hot buttons for the IRS, especially auto, travel, and meal expenses. Casualty losses and bad debt deductions might also increase your audit chances.
• Businesses that show losses are more likely to be audited, especially if the losses are recurring. The IRS might suspect that you must be making more money than you're reporting—otherwise, why would you stay in business?
• Deductions that seem odd or out of character could increase your audit chances, like a plumber who deducts the cost of foreign travel might raise a few eyebrows at the IRS.

The IRS also takes great pains to ensure that you report all of your income. Its computers match the information on employee Form W-2s (the wage and tax statement your employer gives you) and 1099-NEC forms issued to non-employees with the amount of income reported on tax returns using Social Security and other identifying numbers. Discrepancies usually generate questions from the IRS. These computer checks aren't counted in the IRS audit statistics.