Your Odds of Being Audited by the IRS

By on April 30, 2018
Categories: TAXES

Tax season is officially over, but the Internal Revenue Service may not be finished with you.

There is always the chance that the IRS will audit your returns.

The good news for taxpayers, however, is that the odds of getting audited are at their lowest level since 2002. With budget cuts reducing IRS enforcement employees by a third since 2010, audits have declined for six straight years.

At its peak enforcement in 2010, the IRS audited one in 90 individual returns. That represents 1.11% of individual tax returns. In 2017, one in 160 (0.62%) individual returns were audited.

High earners are the most likely to be audited, but the percentage has dropped significantly. Last year, the IRS audited 4.37% of returns of households with income of $1 million or higher. In comparison, the IRS audited 9.55% of these high earners in 2015.

If you make less than $200,000, the chance of getting audited has dropped from 0.76% in 2015 to 0.59% in 2017.

The audit numbers don’t include the routine IRS requests to explain discrepancies between information in a tax return and documents provided by third parties such as financial institutions. For example, a taxpayer may not have reported realized capital gains, but the brokerage firm did. Or a freelancer may not have reported a payment that he or she received, but the payer reported the payment to the IRS.

Here are some red flags that can attract the IRS’s attention:

  • Failing to report all taxable income.
  • Large business expenses.
  • Large charitable deductions.
  • Excessive itemized deductions.
  • Tax-shelter losses.
  • Previous tax problems or audits.
  • Self-employed people using Schedule C.
  • Cash-intensive businesses.
  • Claiming rental losses.
  • Taking an alimony deduction.
  • Claiming 100% business use of a vehicle.

If you get audited, here are some things to know:

You’ll be notified by letter.

The IRS will not initially contact you by phone or email. If someone, purporting to be with the IRS, contacts you that way, it’s a scam. The IRS will notify you of an audit by letter.

Respond quickly.

If the IRS is contacting you about a minor issue, address it and send documentation as soon as possible.

Stay calm.

While an IRS audit sounds ominous, the vast majority are so-called correspondence audits. That means the IRS is just requesting documentation, making some sort of adjustment to a return or correcting a math error.

Know the audit window.

Generally, the IRS can audit returns filed in the past three years. Consequently, you should maintain all your tax records for at least three years. There is no set time for how long an audit may last.


Woman researching taxes and financial planning for small business

Qualified Small Business Stock or QSBS: Maximizing Your Tax Benefit

Read Now
investment management San Diego

2021 Estate Tax Exemption: How to Prepare for the Biden...

Read Now
House for sale

1031 Exchange Biden Adjustments: 1031 Exchange Explained

Read Now


Discover the people who make Dowling & Yahnke one of San Diego’s top wealth management firm.



Our team is available now to discuss all of your financial goals.