November 2009
What fun! IRS Audit
By Ann E. Woolum, CPA/ABV, CBA
In its annual data book, the IRS provides valuable information about how many
tax returns the IRS audits and what categories of returns the IRS is focusing
its resources.
Everyone
wants to know: What are my chances of being audited? During the fiscal year
ended September 30, 2008, almost 1.4 million individual income tax returns were
audited out of a total of 137.8 million individual returns that were filed in
the previous year. This works out to 1.0% of all individual returns filed, about
the same audit rate as the prior year. Only 22.3% of the audits were conducted
by revenue agents, tax compliance officers, and tax examiners; the bulk of the
audits (about 77.7%) were correspondence audits. These percentages are about the
same as they were in FY 2007.
Of the total
number of returns audited, 503,755 (36.2%) were selected on the basis of an
earned income tax credit (EITC) claim (down slightly from the 36.5% rate for FY
2007).
About 1.36
million individual returns were returns that showed gross receipts from farming
(Schedule F). Of this group, only 7,542 (0.5%) were audited in 2008.
The no-change
rate (returns accepted as filed after examination) was 11% for individual
returns examined by revenue agents, tax compliance officers, or tax examiners,
and 15% for correspondence exams.
Wonder how
your itemized deductions compare with those of other filers? The following table
compares key deductions by taxpayers with different adjusted gross incomes,
using IRS data from 2006 returns.
|
Adjusted Gross
Income |
Taxable
Income |
Interest
Expense |
State and
Local Taxes |
Charity |
Medical Expenses
Deducted |
| Under $15,000 |
$3,062 |
$8,761 |
$720 |
$1,373 |
$7,179 |
| $15,000-30,000 |
9,999 |
8,362 |
994 |
1,897 |
6,720 |
| $30,000-50,000 |
22,663 |
8,451 |
1,671 |
2,123 |
5,791 |
| $50,000-100,000 |
47,161 |
9,813 |
3,100 |
2,673 |
6,354 |
| $100,000-200,000 |
98,188 |
12,892 |
6,139 |
3,860 |
9,302 |
| $200,000 & above |
519,436 |
23,274 |
30,597 |
18,539 |
29,509 |
Items to note about the table. Only medical expenses that exceed 7½% of adjusted
gross income are deductible, so few taxpayers normally get a deduction. The
figures above are averages for only those taxpayers. IRS notes that overstating
tax deductions for charitable contributions is rampant. In 2005, 46% of
taxpayers who donated cash made mistakes and 37% of those who donated noncash
items such as household goods committed errors.
In order to
be one of the taxpayers that have a no-change on their tax returns if audited,
you need to maintain documentation for all income and deductions. If we can be
of assistance in your recordkeeping procedures, please contact us.
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