Small Business Taxes & ManagementTM--Copyright 2012, A/N Group, Inc.
This is probably one of the most frequently asked questions. The IRS has just come out with new data for a ten-year period. In the tables below we've reproduced data for the most recent three years for selected categories. Following the table is a brief analysis of the raw data. Keep in mind that these are just broad numbers. Your chances of getting audited depends on many factors. Have only wage, interest, and capital gain income and take the standard deduction? Your chances are probably less than indicated. Take a large charitable contribution deduction, have a Schedule C, or rental property, and your chances could be higher. The same is true for business returns. Don't play the audit lottery. It can be costly.
Individual Returns
Total Individual ReturnsBusiness ReturnsFY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Field Examinations 326,249 342,762 391,621 14.3 Correspondence Audits 1,099,639 1,238,632 1,173,069 - 5.3 Total Exams 1,425,888 1,581,394 1,564,690 - 0.1 Total Returns 138,949,670 142,823,105 140,837,499 - 1.4 Percent Audited 1.03% 1.11% 1.11%Income Under $200,000FY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Field Examinations 269,865 284,241 313,229 10.2 Correspondence Audits 1,010,870 1,144,178 1,076,607 - 5.9 Total Exams 1,280,735 1,428,419 1,389,836 - 2.7 Total Returns 133,924,956 137,892,685 136,387,547 - 1.1 Percent Audited 0.96% 1.04% 1.02%Income $200,000 and HigherFY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Field Examinations 56,384 58,521 78,392 34.0 Correspondence Audits 88,769 94,454 96,462 2.1 Total Exams 145,153 152,975 174,854 14.3 Total Returns 5,024,714 4,930,420 4,449,952 - 9.7 Percent Audited 2.80% 3.10% 3.93%Income $200,000 and HigherFY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Field Examinations 15,730 16,509 20,475 24.0 Correspondence Audits 12,619 15,985 15,947 - 0.1 Total Exams 28,349 32,494 36,422 12.1 Total Returns 441,715 388,763 291,831 - 24.9 Percent Audited 6.42% 8.36% 12.48%
Small Corporation Returns (Assets Under $10 Million)CollectionFY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Returns Examined 18,298 19,127 19,697 3.0 Returns Filed in Prior CY 2,146,400 2,041,474 1,931,008 - 5.4 Percent Audited 0.85% 0.94% 1.02%Large Corporation Returns (Assets $10 Million and Higher)
FY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Returns Examined 9,536 10,207 10,459 2.5 Returns Filed in Prior CY 65,546 61,570 59,291 - 3.7 Percent Audited 14.55% 16.58% 17.64%Sub S Returns
FY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Returns Examined 17,456 16,327 18,519 13.4 Returns Filed in Prior CY 4,390,857 4,414,662 4,444,154 0.6 Percent Audited 0.40% 0.37% 0.42%Partnership Returns
FY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Returns Examined 12,855 12,406 13,770 11.0 Returns Filed in Prior CY 3,348,845 3,423,583 3,434,905 0.3 Percent Audited 0.38% 0.36% 0.40%Exempt Organization ReturnsFY 2009 FY 2010 FY 2011 % chg. 2010 to 2011 Returns Examined 10,187 11,449 11,699 2.2 Returns Filed in Prior CY 823,087 776,300 858,865 10.6 Percent Audited 1.24% 1.47% 1.36%
Enforcement Actions
FY 2009 FY 2010 FY 2011 % chg. 2010 to 2011
Levies 3,478,181 3,606,818 3,748,884 3.9
Returns Filed in Prior CY 965,618 1,096,376 1,042,230 - 4.9
Percent Audited 581 605 776 28.3
Comments and AnalysisData is not available with respect to a breakdown of individual audits by income level before FY 2006 for income under $200,000 or between $200,000 and $1 million. The percentage of those taxpayers audited with income under $200,000 rose from 0.93% in FY 2006 to 1.04% in FY 2010, and declined slightly in FY 2011. For taxpayers with income between $200,000 and $1 million, the audit rate increased from 2.57% in FY 2006 to 3.93% in FY 2011, a 53% increase in your chances. For taxpayers with income of $1 million and more, the percentage of returns audited increased from 5.03% to 12.48%, a 148% increase. In addition, your chances of getting a field audit as opposed to a correspondence audit increase as income increases.
Audits of even small (assets under $10 million) regular corporations have increased, but the percentage still remains small. As a corporation increases in asset size, the chances of an audit increase.
Over the 10-year period, the number of S corporations has gone from 2,887,100 to 4,444,154, a 54% increase. After falling in FY 2003 and FY 2004, the audit rate has ended the 10-year period at virtually the same percentage it started at, 0.43%.
The percentage of partnership returns audited jumped in the middle of the 10-year period, then remained relatively constant.
The biggest change was in enforcement actions. Levies increased from 674,080 in FY 2001 to 3,748,884 in FY 2011. Liens increased from 426,166 to 1,042,230 during the same period. Seizures increased from 234 in FY 2001 to 776 in FY 2011.
Copyright 2012 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles in this publication are not intended to be used, and cannot be used, for the purpose of avoiding accuracy-related penalties that may be imposed on a taxpayer. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 01/17/12