Small Business Taxes & Management

Frequently Asked Questions


What Are My Audit Chances?

 

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 Returns
                                   FY 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 $200,000
                                   FY 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 Higher
                                   FY 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 Higher
                                   FY 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%

Business Returns

Small Corporation Returns (Assets Under $10 Million)
                                   FY 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 Returns
                                   FY 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%

Collection

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 Analysis

Data 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


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--Last Update 01/17/12