What Are the Chances of Being Audited?

• Posted on July 19, 2011
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Each year, the IRS releases a publication entitled the “Data Book.”  The 2010 version of the book was released in early March, which provides statistical data on its fiscal year (FY) 2010 audit activities.  The book provides valuable information that include how many tax returns the IRS examines (audits), how they examine them, and what categories of returns IRS is focusing its resources on.

Keep in mind that audits usually occur one to two years after the return is filed.  The data found in the 2010 Data Book is based upon returns filed in calendar year 2009, which will be predominantly 2008 returns, and audited in fiscal year 2010.  Year-to-year changes are compared to returns filed in 2008, and audited in fiscal year 2010, which are predominantly 2007 returns.

Overall chance of being audited – Out of 142,823,105 total individual income tax returns filed in 2009, 1,581,394 were audited.  This works out to roughly 1.1%, a bit higher than the 1% rate for the previous year.  But the overall audit percentage can be misleading because certain types of returns are audited more frequently than others.  For example, 473,999 (30%) were for returns that included an earned income tax credit (EITC) claim.

Of the total, only 21.7% of the individual audits were conducted by face-to-face meetings with IRS personnel.  The bulk of the audits (about 78.3%) were conducted by mail.

The IRS, like any good business, concentrates their efforts where they produce the best results (revenue)!  Thus, their audit selection process favors returns that claim the EITC (where a lot of fraud is prevalent) and higher-income taxpayers.  As a result, their Data Book presents the statistics in the format.  In addition, the audit percentages shown below are based on returns with the same category rather than overall returns filed.