What Are the Chances of Being Audited?

Find out more about IRS audit rates and the chances of you being audited.

By , J.D.

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. So, the traditional IRS office audit might soon become a real rarity.

How Many 2016 Returns Were Audited Through 2020

The IRS has three years to audit most returns after they are filed. Here are the IRS statistics showing how many returns filed in 2016 were audited through 2020 when most audits for 2016 returns were completed.

Adjusted Gross Income

Audit Rate

0

8.9%

$1- $25,000

0.7%

$25,000-$50,000

0.4%

$50,000-$75,000

0.4%

$75,000-$100,000

0.4%

$100,000-$200,000

0.4%

$200,000-$500,000

0.6%

$500,000-$1,000,000

1.1%

1,000,000-$5,000,000

2.5%

$5,000,000-$10,000,000

5.1%

over $10,000,000

8.6%

(Source: IRS Data Book, 2020.)

Overall, the chance of being audited was 0.6%. This means only one out of every 166 returns was audited—the lowest audit rate since 2002.

The Audit Rate Is Typically Even Lower for Most Taxpayers

Indeed, for most taxpayers, the chance of being audited is even less than 0.6%. For taxpayers who earn $25,000 to $200,000, the audit rate was 0.4%—that's only one in 250.

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. Only 2.5% of taxpayers earning $1 million to $5 million in 2016 were audited by the IRS through 2020. This rate was the lowest audit rate for millionaires since the IRS first began tracking it in 2004.

Why Audits Are Less Common Than in the Past

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.

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.

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

Absolutely not. Even though audit rates are historically low, the IRS still audited 509,917 individual tax returns in 2020. 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.

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