Pretty small, actually. According to Internal Revenue Service (IRS) data, for all returns filed for tax years 2010 through 2018, the agency examined 0.60% of individual returns and 0.97% of all corporation returns. In fiscal year 2019 – the last year for which data is available – the IRS audited 680,543 individual tax returns – or about .4%. That works out to about one out of every 250 taxpayers.
You have better odds of getting into Harvard or meeting your partner on a blind date.
Can you get audited even if you didn’t do anything wrong?
Yes, because even though some audits are targeted (more on that in a moment), a handful are random. But even those aren’t truly random: returns may be selected based on a formula where your returns are compared against “norms” for similar returns. If your return looks out of the ordinary, you could be pulled for examination even if your return is ultimately deemed to be flawless.
The good news is that most taxpayers are doing the right thing: the estimated voluntary compliance rate is 83.6%.
Can you avoid an audit even if you did something wrong?
Also yes. Consider the law of averages. Maybe that lucky penny in your pocket. Or being born in the Year of the Rabbit. But mostly, it’s because the IRS is largely lacking resources. The agency’s budget in 2018 was about 20% less than it was in 2010, adjusted for inflation. The IRS has also lost nearly 30,000 full-time job positions over that time period (for context, the IRS currently has about 78,000 on staff). According to the agency, “These losses directly correlate with a steady decline in the number of individual audits during the past nine years.”
Why would I be audited?
Outside of random audits, there are a few common triggers, including:
- Your third party information forms (like a 1099) don’t match your return;
- Your expenses appear excessive compared to your income;
- Your return is sloppy (math and transposition errors); or
- Your business or rental real estate shows a continuous pattern of losses (the IRS expects you to make money eventually).
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