The likelihood of individual tax audits by the IRS continues to fall. In 2019, the IRS examined 0.45% of individual tax forms. This number is lower than the year before and less than half of the rate of tax examinations performed in 2010.
One aspect of lower audits is a lot of uncollected tax revenue. Between 2011 and 2013, unpaid tax revenue was estimated at over $380 billion. The average household ends up paying an estimated surtax of about $3,000 to pay for those who are not paying their share of taxes, according to the Taxpayer Advocate Service.
Fewer IRS Employees and Lower Audits
The IRS connects the reduction in staff directly to the number of audits. Between 2010 and 2019, the IRS lost more than 29,600 full-time staff positions, including Revenue Agents and Revenue Officers. According to the IRS, “these losses directly correlate with a steady decline in the number of individual audits during the past nine years.”
Another problem with fewer IRS employees is that it is more difficult for taxpayers to contact the IRS with questions or concerns. According to the Taxpayer Advocate Service report, employees only answered about 31% of the 15 million calls to the automated phone system, and callers had to wait on hold for an average of 38 minutes.
What Does a Lower Chance of an Audit Mean for Me?
A lower rate of audits does not mean you will not be receiving a tax notice for unpaid taxes or questions about suspicious tax reporting. According to the IRS, tax laws are enforced in a number of ways, primarily through examining tax returns with the highest potential for noncompliance. This is done by using “risk-based scoring mechanisms, data-driven algorithms, third-party information, whistleblowers, and information provided by the taxpayer.”
If tax return reviews identify high-potential noncompliance, your tax return may be selected for an audit. The penalties for noncompliance may depend on the type of errors, whether any reporting errors were intentional, and the extent of the audit errors.
Under IRC 6662, if the tax audit finds there were problems with the tax return that trigger the imposition of the accuracy-related penalty, the taxpayer may be subject to a 20% penalty of the portion of the underpayment.
Under IRC 6663, if any underpayment on a return is due to tax fraud, the taxpayer may be subject to a penalty equal to 75% of the portion of the underpayment attributed to fraud.
What to Do if You are Subject to an IRS Tax Audit
If your taxes are being audited by the IRS, you have rights as a taxpayer, which include:
- The right to representation, by yourself or an authorized representative;
- The right to professional and courteous treatment by IRS employees;
- The right to privacy and confidentiality about tax matters;
- The right to know why the IRS is asking for information, how the information will be used, and the consequences for not providing the information; and
- The right to appeal a tax audit outcome.
Tax Audit Questions for Maryland Taxpayers
An experienced tax attorney will be able to handle IRS documents and information requests with minimal disruption to your life and keep you advised of your rights and options. As soon as you find out about an IRS audit or investigation, contact an experienced Maryland tax attorney. Contact Gabaie & Associates, LLC for a free consultation on your state or federal tax issue at (410) 862-2198.