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What’s Really Happening with IRS Audits in 2017?

  • 26 April 2017
  • Author: Alexander Carr
  • Number of views: 584
  • 0 Comments
What’s Really Happening with IRS Audits in 2017?

You may have heard that the IRS is auditing less but, before you breathe a sigh of relief, there are a few things you should know. While the number of audits has declined across the board since 2012, it’s a decrease of a fraction of 1 percent of all tax returns filed. Additionally, the IRS was spared significant budget cuts by the Trump administration recently, which means the recent change in federal leadership will not necessarily translate into fewer audits for all. And it’s important to note that the type of taxes you file and what you claim can make a big difference when it comes to your audit risk.

Here are some clues as to who still faces enhanced audit risks:

  • Overall, in FY 2016, higher income individual tax returns  were more likely to be examined than returns in lower income tax brackets..
  • Of the 1,034,955 individual income tax returns audited in FY 2016, 36.7% (380,260) were selected for examination based on an Earned Income Tax Credit (EITC) claim.
  • For all corporate returns (other than Form 1120-S), the audit rate in 2016 was 1.1 percent. For small corporations with returns showing total assets of $5 to $10 million, the rate rose slightly from 2015 to 1.6 percent.
  • For large corporations with returns showing total assets of $10 to $50 million, the audit rate in 2016 was 4.7 percent. That rate increases as total assets increase, with large corporations reporting $20 billion or more being audited at a rate of 78 percent.
  • The IRS is rolling out a Large Business and International (LB&I) compliance campaign focusing on 13 specific “issues of concern” that span a broad range of topics, including partnerships, related-party transactions, and various industry-specific tax issues. This may spare some large corporations from being auditing simply because of their size but it could mean a much greater auditing risk for those who are flagged under the new system.

It’s estimated that one in 143 people are audited each year (your chance of winning the lottery is about one in 14 million, by the way). Furthermore, the IRS is beefing up other programs, like using private debt collectors to track down unpaid taxes. So if you’ve been hoping the agency has forgotten about old debts (older than one year), you may be in for an unwelcome surprise.

If you have any questions or concerns about your audit risks in 2017, feel free to contact us.

Image Copyright: ximagination / 123RF Stock Photo

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