What are your chances for being audited?—IRS’s 2011 data book provides some clues.

(Excerpts from a recent article by Thompson Reuters)

IRS has issued its annual data book, which provides statistical data on its fiscal year (FY) 2011 activities. As this article explains, the data book provides valuable information about how many tax returns IRS examines (audits) and what categories of returns IRS is focusing resources on, as well as data on other enforcement activities such as collections.  

What are the chances of being audited? Of the 140,837,499 total individual income tax returns with a filing requirement, 1,564,690 were audited. This means roughly 1.1% of all returns filed in 2011 ended up being audited.

Only 25% of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners and revenue officer examiners.  The 75% balance of the audits were correspondence audits. Following are selected audit rates for individuals not claiming the EITC:

  • For business returns showing total gross receipts of $100,000 to $200,000, 4.3% of returns were audited in FY 2011, down from 4.7% in FY 2010. 
  • For business returns showing total gross receipts of $200,000 or more, 3.8% of returns were audited in FY 2011, an increase from 3.3% in FY 2010. 
  • For personal returns showing total positive income of $200,000 to $1 million, 3.2% of returns not showing business activity were audited, and 3.6% of returns showing business activity were audited. The audit rate for such returns was higher than the 2.5% and 2.9% respective rates for the previous year. 
  • For FY 2011, the audit rate for returns with total positive income of $1 million or more was 12.5%, close to forty nine percent higher than the 8.4% rate for FY 2010. 

Not surprisingly, examination coverage increased for higher income earners. For example,

  • IRS audited 1% of those returns with adjusted gross income (AGI) between $100,000 and $200,000 (up from .71% for FY 2010), and 
  • 2.66% for those with $200,000 to $500,000 of AGI (up from 1.92% for FY 2009). 
  • Audits jumped to 11.8% for those with at least $1 million but less than $5 million of AGI (up from 6.67% for FY 2010). 
  • Similarly, coverage increased for those with at least $5 million but less than $10 million of AGI, as well as for those with AGI of $10 million or more.

Select audit rates for business returns were as follows:

  • For all corporate returns (other than Form 1120S), 1.5% were audited. 
  • For small corporations with balance sheet returns showing total assets of $250,000 to $5 million, 1.7%, for those corporations with assets between $5–10 million, the audit rate increased to 2.6%. 
  • For large corporations with returns showing total assets of $10 million or more, the overall audit rate was 17.6%, up from 16.6% for FY 2010. The audit rate for these corporations increased with the size of the entity, rising to 50.5% for those with $5–20 billion, and 95.6% for those with $20 billion or more. 
  • For partnership and S corporation returns, the audit rate was .4%, the same as for the year before. 

On the penalty side of things, IRS issued penalties as follows:

  • Of the FY 2011 assessments, the “top three” penalties in percentage terms were 58.6% for failure to pay, 25.6% for underpayment of estimated tax, and 13% for delinquency. 
  • On the business side, there were a total of 1,080,027 civil penalty assessments (down from 1,145,931 for the year before), and the “top three” penalties in percentage terms were 55% for delinquency, 24% for failure to pay, and 18.4% for estimated tax. Offers-in-compromise.  

IR 2012-36; 2011 Data Book.  The IRS Data Book can be viewed at http://www.irs.gov/pub/irs-soi/11databk.pdf. IR-2012-36 can be viewed at http://www.irs.gov/newsroom/article/0„id=255853,00.html. Source: Federal Tax Updates on Checkpoint News tab 3/26/2012