Your Chances of Being Audited Have Declined. Here’s Why

by Bruce Givner on April 21, 2015

New data show that budget cuts to the Internal Revenue Service (IRS) in the past few years has led to a decreasing likelihood that individual taxpayers will be audited.

For average taxpayers, the chance of being audited has dropped 23% in recent years, a number that closely follows the inflation-adjusted 17% drop in the IRS budget since 2010. Last year, a measly 0.9% of individual taxpayers were audited, the lowest proportion in seven years. And that rate is only expected to continue its decline.

For wealthier taxpayers, the chances of being audited remain higher than the average. Taxpayers earning an annual income of between $200,000 – $1 million have s 2.2% chance of being audited, more than double that of average taxpayers. For the super-wealthy, meaning those taxpayers earning more than $1 million each year, the chances of being audited are 7.5%. While these numbers seem high, both are experiencing similar declines as the IRS budget decreases.

However, one group of individual taxpayers has seen their chances of being audited increase. Thanks to new laws and regulations on investments held overseas that have made tax filing increasingly difficult, taxpayers living abroad are more likely to be audited than ever before.

While the decrease in the chance of being audited likely comes as a pleasant surprise to most taxpayers, the consequences of this decline have the potential to do serious harm both in the short and long term in terms of the amount of tax revenue the government collects. In 2013, the IRS uncovered a total of $11.9 billion is unpaid taxes, which is 15% less than the year before. As the chances of being audited declines, more taxpayers may attempt to cheat the IRS. Indeed, academic studies have shown that taxpayers who have gone through an audit are more likely to report more taxable income for years to come as the threat of facing another audit keeps them honest.

According to IRS Commissioner John Koskinen, the budget cuts faced by the IRS is causing the government to lose at least $2 billion in revenue each year.

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