IRS Tax Audits (2016) Part 2

As reported 2/22/16 by Marketwatch, IRS Tax Audits in 2015:

1) The IRS audited less than 1% of nearly 147m individual tax returns in 2015 (FY 9/30//15) the lowest rate in a decade;

2) However, audits for high net worth taxpayers are at 7 %. The IRS audited nearly 10% of individual tax returns with income over $1m in 2015, compared to 5.3% in 2006. While the audit rate for tax returns with $200k to less than $1m in income is 2.6%, same as 10 years ago.

3) The IRS collected $54.2B in tax revenue from audits down from $57B in 2014;

According to IRS Commr. John Koskinen budget cuts are affecting the IRS: “Currently we remain more than $900m below our 2010 funding levels despite handling 10m additional tax returns.” In 2015, the IRS had 25% fewer enforcement officers and agent than it had in 2010. The IRS estimates that for every $1 invested in IRS audits, it produces $4 in tax revenue.

The IRS is relying less on face-to-face audits known as field audits which fell 8% in 2015 (from 2014) and more on correspondence audits (which examine IRS special issues e.g.. business expenses, rental properties, charitable deductions) which rose nearly 35%.

The IRS is emphasizing automated document matching audits which inquiries focus on a discrepancy between what a 3rd party (e.g. bank, broker) has reported about a taxpayer and what a taxpayer’s individual tax return reports.

In 2015, IRS boosted its audits of Partnerships and S-Corporations, since they estimate that 1% of taxpayers get more than 2/3 of Partnership and S-Corporation income since 2011. In December 2015, Congress enacted new provisions to audit partnerships after a GAO study showed the difficulty the IRS had in auditing large partnerships.

For more information see (2/22/16) Market Watch: “IRS Focuses its Audits More on $1m Income”.

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