IRS Audit Rates

One of the many startling facts of our current tax regime/system is that there are so few audits by the IRS. The basic reason is simple – the IRS for many years has been starved for funds (it is underfunded). As a result, its computer systems are a couple of generations old, and it simply doesn’t have the manpower or the technical power to do the number of audits that it should be doing. 

All that said, I trust you will find it interesting to realize just how infrequent IRS audits are. Based on 2021 stats (the most current available – what do you expect after all?), the following are the audit rates (expressed as a percentage of the returns that were examined/audited), based on their income levels:

There are a number of things you can learn from the above. For example:

• The rate of audits is barely perceptible,

• If you’re fortunate enough to have income in excess of 10 million dollars per year, you’ll get audited about once every 34 years,

• However, if your income is only in the one million to 5 million dollar category, you’re going to get audited only once every 200 years,

• If you are in the kind of sweet spot of income (between $50,000 and $500,000 per year), you’re going to get audited once every 1,000 years,

• If you make virtually nothing, you’ll get audited as often as those people making between one and 5 million dollars a year,

• If you actually make nothing, you’ll get audited as often as those making between $500,000 and one million dollars per year.

Yes, there is certainly something wrong with this. While these are stats from the tax year of 2021, which is already a few years stale, there is no reason to believe the stats for 2022 or 2023 would be appreciably different. And, my gut tells me that the stats for 2024 and perhaps 2025, etc., will show an even lower rate of examinations.

If you have any questions please contact Kal at kal@barsongroup.com