The chances of receiving an audit
The IRS conducts only a little over 1 percent of all returns.
March 26, 2013
The chances of receiving an auditArticle provided by Frost & Associates
Visit us at http://www.floridataxattorney.com/
The dreaded tax audit is something many individuals and organizations fear. Fortunately, the actual likelihood of a tax audit is probably less than most people might think, according to the following data compiled by TurboTax. The IRS received over 140 million returns in 2011 and conducted only a little over 1.5 million audits --- just a little over 1 percent of all returns.
Breaking down the statistics further, it is clear that the IRS largely targets big corporations. In 2009, the IRS recovered nearly $30 billion from businesses with over $250 million in assets, compared to $1.8 billion from all other businesses. These corporations have a nearly 15 percent chance of being audited.
A similar breakdown of audits occurs for individuals. In 2010, the IRS audited far more people making under $200,000 numerically, but again only 1 percent of all taxpayers in this category received an audit, while the IRS targeted 8.4 percent of people making over one million dollars for an audit.
Avoiding audits and fighting back
Of course, while the likelihood of an audit isn't great, that provides small comfort to taxpayers who do have to go through the sometimes arduous process. The IRS randomly audits a certain number of returns, but has traditionally looked to certain red flags. Some of these are:
-A drastic change in income: The IRS will look to previous returns, and if there is a significant difference in income an agent may think a person or business is underreporting income.
-Deductions for solely-owned businesses:Legitimate deductions are a good way to keep costs down, but the IRS will look closely at home office deductions, food and entertainment deductions and travel expenses to ensure these costs were necessary expenses of the business. Fair or not, the IRS looks with more suspicion on a taxpayer who owns his or her own business.
-A large amount of charitable giving: Taxpayers who claim to have given $500 or more to charities can become targets of the IRS. Taxpayers must file Form 8283 if they do give more than $500, so the IRS can fairly easily identify an inflated charitable giving deduction.
Other red flags include business partners or investors who also received an audit and if there is a discrepancy between a payor and the taxpayer, such as if a W-2 or Form 1099 do not match the return.
Taxpayers facing an audit do have rights; they have the right to professional treatment, a right to know why they are facing an audit and the right to representation by a tax attorney. While an audit can be daunting, compiling documents and records can go a long way towards assuaging IRS suspicions. Even if ultimately the taxpayer cannot prove deductions or expenses, or agrees with the IRS, there are several ways to pay any tax owed. Taxpayers do also have the right to appeal an audit, both to the IRS and in court.
Individuals and organizations facing a tax audit should seek the help of an experienced tax attorney to guide them through what can be a lengthy and complicated process, and to ensure they are only paying the amount of tax they are obligated to.