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Financial Fitness & Life Planning

Wondering What Your Chances Are For an IRS Audit? by Gary Topple, CPA

The IRS has recently issued its annual data book, which provides statistical data on its fiscal year 2010 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 its resources on, as well as data on other enforcement activities, such as collections.  The figures and percentages in this article compare returns filed in calendar year 2009 and audited in fiscal year 2010 to returns filed in calendar year 2008 and audited in fiscal year 2009.
 
Of the 142,823,105 total individual income tax returns with a filing requirement, 1,581,394 were audited.  This works out to roughly 1.1%, a bit higher than the 1% rate for the previous year.  Of the total number of individual income tax returns audited in fiscal year 2010, 473,999 (30%) were for returns with an earned income tax credit (EITC) claim, a decrease from the 35.64% of all audited returns for fiscal year 2009.
 
Only 21.7% of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners and revenue officer examiners; the bulk of the audits (about 78.3%) were correspondence audits.  
 
Not surprisingly, examination coverage increases for higher income earners.  For example, the percentage was .71% for those returns with adjusted gross income (AGI) between $100,000 and $200,000 (up from .67% for fiscal year 2009), and 1.92% for those with $200,000 to $500,000 of AGI (up slightly from 1.86% for fiscal year 2009).  Exam coverage increased to 6.67% for those with at least $1 million but less than $5 million of AGI (up from 5.35% for fiscal year 2008).  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.
 
The IRS Data Book also contains information regarding audit rates for business tax returns, number of tax returns filed, penalties assessed and other information.  Amazingly, the IRS Data Book has statistics for notices were mailed to taxpayers regarding math errors on tax returns.  It makes me wonder who is preparing tax returns without the benefit of tax software.
 
And of course the IRS Data Book has statistics on criminal investigations, prosecutions and convictions.  In fiscal year 2010, there were 4,706 criminal investigations resulting in 2,184 convictions.  Of those sentenced, approximately 81% were incarcerated (which includes imprisonment, home confinement, or electronic monitoring).
 
You can view the IRS Data Book on line.  Here is the link http://www.irs.gov/pub/irs-soi/10databk.pdf.
 
Gary Topple, CPA has more than 33 years of tax, accounting and auditing experience. 
 
He is a partner in the CPA firm G. R. Reid Associates, LLP. 

gtopple@grrcpas.com
 
181 Main Street Huntington, NY  11743
631-425-1800 extension 306 Fax 631-425-4656

 
The information contained herein is intended to afford general guidelines on matters of taxation.  Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Unless specifically stated otherwise, the written advice in this article or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Readers are encouraged to consult directly with their professional advisors or a professional advisor at G.R. Reid Associates, LLP for advice concerning specific matters

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