Mar 23, 2011

Odds of an Audit: Interesting IRS Stats

So you're thinking about playing the old "audit lottery," and wonder what the stats show regarding your chances of getting caught, and what the consequences might be.

Check out the IRS 2010 Data Book (Publication 55B) which is supposed to be printed by mid April. The info there covers IRS fiscal year 2010, and covers not only tax audit rates, but other items, such as the categories of returns which interest the IRS most, and collections efforts.

In terms of the overall changes of being audited, only about 1.1% of all individual returns filed in the fiscal year were audited -- up from 1.0% in the prior year. And only 21.7% of the individual audits were actually conducted by revenue agent folk. The other 78.3% were correspondence audits.

Here are some key stats regarding individual audits (other than audits of taxpayers claiming the earned income tax credit):

  • Business returns (other than farmers) showing total gross receipts of $100,000 to $200,000: 4.7% audited
  • Business returns showing total gross receipts of $200,000 or more: 3.3% audited
  • Farmers (Schedule F filers): 0.4% audited
  • Individuals with adjusted gross income (AGI) between $100,000 and $200,000: 0.71% audited
  • Individuals with AGI between $200,000 and $500,000: 1.92% audited
  • Individuals with $1 to $5 million AGI: 6.67% audited

As for corporations (other than those filing Form 1120S), 1.4% were snagged for audit overall. But small corporations with assets of $1 to $5 million experienced a 1.7% audit rate.

Some more interesting stats: the total number of individual returns actually filed dropped 2% from the year before. When times are bad, the number of filers drops off. Nonetheless, IRS continues to find a way to penalize very many filers -- the top three penalties in percentage terms were 57.3% for failure to pay, 27.3% for underpayment of estimated taxes, and 13% for filing taxes late.

And beyond the common civil penalties, the stats show that crime doesn't pay -- IRS initiated 4,706 criminal investigations in 2010, and of those convicted, 81.5% were incarcerated - up from 81.2% the year before.

Learn how to stay off the IRS radar -- and get tips on what to do if you are audited -- in Nolo's articles How to Reduce the Chance of an Audit and Top 10 Tips for Surviving an Audit.