What GAO Found
Audit Rates.From tax years 2010 to 2019, audit rates of individual income tax returns decreased for all income levels. On average, the audit rate for these returns decreased from 0.9 percent to 0.25 percent. Internal Revenue Service (IRS) officials attributed this trend primarily to reduced staffing as a result of decreased funding. Audit rates decreased the most for taxpayers with incomes of $200,000 and above. According to IRS officials, these audits are generally more complex and require staff's review. Lower-income audits are generally more automated, allowing IRS to continue these audits even with fewer staff.
Although audit rates decreased more for higher-income taxpayers, IRS generally audited them at higher rates compared to lower-income taxpayers, as shown in the figure. However, the audit rate for lower-income taxpayers claiming the Earned Income Tax Credit (EITC) was higher than average. IRS officials explained that EITC audits require relatively few resources and prevent ineligible taxpayers from receiving the EITC.
Audit Rates by Total Positive Income, Tax Year 2019
Audit Results and Resources. From fiscal years 2010 to 2021, the majority of the additional taxes IRS recommended from audits came from taxpayers with incomes below $200,000. However, the additional taxes recommended per audit increased as taxpayer income increased. Over this time, the average number of hours spent per audit was generally stable for lower-income taxpayers but more than doubled for those with incomes of $200,000 and above. According to IRS officials, greater complexity of higher-income audits and increased case transfers due to auditor attrition contributed to the time increase.
Audits of the lowest-income taxpayers, particularly those claiming the EITC, resulted in higher amounts of recommended additional tax per audit hour compared to all income groups except for the highest-income taxpayers. IRS officials explained that EITC audits are primarily pre-refund audits and are conducted through correspondence, requiring less time. Also, lower-income audits tend to have a higher rate of change to taxes owed.
Why GAO Did This Study
IRS estimated that individual taxpayers underreported their income tax on average by $245 billion each year for tax years 2011 to 2013. This underreporting is the largest component of the tax gap—the difference between the amount of taxes owed and taxes paid timely and voluntarily.
In recent years, IRS has examined, or audited, a decreasing proportion of individual tax returns. This trend has raised concerns about the potential for declining taxpayer compliance, as well as whether IRS is equitably selecting taxpayers for audit, as audit rates for higher-income taxpayers have decreased more than audit rates for lower-income taxpayers.
GAO was asked to report on trends in IRS audit rates, audit results, and resources used for audits across individual taxpayer income levels. This report analyzes, for the most recent years available, (1) audit rates, and (2) audit results and resources used by taxpayer income.
GAO analyzed at least 10 years of data from audits of individual tax returns reporting various levels of income. GAO also analyzed 10 years of summary data related to the amount of taxes IRS collected from individual taxpayer audits. GAO interviewed IRS officials from various operating and research divisions to identify contextual factors and likely reasons for any audit trends. GAO also reviewed documentation to understand IRS's audit data, budget, and staffing.
For more information, contact James R. McTigue, Jr. at (202) 512-6806 or mctiguej@gao.gov.
FAQs
The audit rate of individual income tax returns fell by two-thirds between 2011 and 2018—from 0.9 percent of 2011 tax returns to 0.3 percent of 2018 returns. Among returns with positive income of $500,000 or less, the audit rate dropped from 0.7 percent to 0.3 percent.
What are the odds of being audited by income? ›
Who Gets Audited the Most?
| Adjusted Gross Income | Audit Rate |
|---|
| 0 | 0.3% |
| $1- $25,000 | 0.4% |
| $25,000-$50,000 | 0.2% |
| $50,000-$75,000 | 0.1% |
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The taxpayers most likely to be audited are those with annual incomes exceeding $10 million — about 2.4% of those returns were audited in 2020. But the second most likely group to get audited are low- and moderate-income taxpayers who claim the Earned Income Tax Credit, or EITC.
What is the compliance rate for the IRS? ›
Voluntary compliance rate remains relatively steady
After IRS compliance efforts are factored in, the projected share of taxes eventually paid is 86.3% for tax year 2021, down slightly from the 87.0% for tax years 2014-2016.
Are IRS audits increasing? ›
The IRS will increase audit rates by more than 50% on wealthy individual taxpayers with total positive income over $10 million, with audit rates going from an 11% coverage rate in 2019 to 16.5% in tax year 2026.
What are the odds that such a taxpayer will be audited? ›
What percentage of tax returns are audited? Your chance is actually very low — this year, 2022, the individual's odds of being audited by the IRS is around 0.4%.
Who gets audited by the IRS the most? ›
The taxpayer class with unbelievably high audit rates – five and a half times virtually everyone else – were low-income wage-earners taking the earned income tax credit. This credit is provided to offset the taxes for the lowest wage-earners in the country.
What is the IRS 90% rule? ›
Generally taxpayers must pay at least 90 percent of their taxes throughout the year through withholding, estimated or additional tax payments or a combination of the two. If they don't, they may owe an estimated tax penalty when they file.
What is the overall compliance rate? ›
Your compliance rate can be calculated as the ratio of complying business entities, expressed as a percentage. For example, if you have 100 employees and 75 of them comply with a particular regulation, your compliance rate is 75%.
What is the formula for compliance rate? ›
This calculation involves counting the number of instances where the company conforms to specific regulations and dividing it by the total number of regulatory requirements applicable to the business. Hence, the Regulatory Compliance Rate for this company stands at 90%.
New for 2024
The tax items for tax year 2024 of greatest interest to most taxpayers include the following dollar amounts: The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023.
How far back can an IRS audit? ›
Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.
What does IRS consider high income? ›
The Tax Reform Act of 1976 requires annual publication of data on individual income tax returns reporting income of $200,000 or more, including the number of such returns reporting no income tax liability and the importance of various tax provisions in making these returns nontaxable.
What will trigger an IRS audit? ›
Unreported income
The IRS receives copies of your W-2s and 1099s, and their systems automatically compare this data to the amounts you report on your tax return. A discrepancy, such as a 1099 that isn't reported on your return, could trigger further review.
Do low income people ever get audited? ›
While the IRS still audits a greater share of high- income filers than low-income ones, low earners who claim the Earned Income Tax Credit (EITC) face much higher audit rates than other taxpayers with similar incomes.
What are the odds of self-employed getting audited? ›
But for individuals filing with a Schedule C — the form you must use if you have 1099 income — your odds of getting audited are higher. Still, overall, your odds of getting audited are low — just a few percent out of 100. But certain actions or deductions will increase the likelihood of investigation.
Are you more likely to get audited if you paper file? ›
You filed a paper return
Paper returns give you a much greater chance of making a math error than online software, and even something as simple as illegible handwriting can send your tax return to the pile of those getting a closer inspection.
