For the vast majority of taxpayers, there is not much need to worry that you will be audited. In 2016, only 0.6% of individual income tax returns were audited according to the IRS 2017 Data Book. Why? For starters, after the IRS budget cuts, we lost 2,200 agents that previously audited returns.

The “real” audit rate, however, is closer to 7.0%. The IRS does not include the over 9.2 million notices that are questioning items on your client’s tax returns (such as forgetting to include a 1099-Misc form).  The IRS is relying more and more on technology to uncover underreporting and underpayment of taxes.

The following are the different taxpayer groups are more susceptible to catching the attention of auditors.

Returns that report more than $10 Million in income or report no income

Sixteen percent of individuals who reported over $10 million in income were audited in 2014. Surprisingly, the IRS audited those returns at a higher rate than those that reported no income.

The IRS audited 5.3% of tax returns with no income in 2014. If your income is $25,000 – $200,000, it is unlikely that you will be singled out for an audit.

Estate Tax Returns of More than $5 Million

In 2014, the IRS did an audit on 8.5% of estate tax returns which was well above the .9% of individual returns. 21% of even larger estate tax returns (between $5 million to $10 million) were audited, while 27% of those over $10 million received an audit.

Individual Filing of International Returns Raises a Red Flag

The IRS is focusing more attention on international returns. Statements made by experts in the field, strongly emphasized the practice of offshore tax evasion as being fundamentally unfair. Wealthy people evading the law by stashing their money overseas and not paying their share of tax is forcing the bulk of lower income citizens to foot the bill to fund the government. In 2014, they audited 4.8% of international returns.

Errors in Information Entered

If someone filling out income tax forms makes simple, careless mistakes, red flags go up to the tax auditors. Filers neglect to get all report forms and statements together and forget to report dependents and exemptions correctly. The automated systems recognize these discrepancies, but can’t tell if they are actual mistakes or intentional. Neglecting to report all your income and other figures could result in an audit especially at higher incomes. Those who contribute to more charities and other organizations open up the possibility for fraud.

Reports of Unrealistic Itemized Deductions

An individual or small business could be signaled out for an audited if they claim itemized deductions that are clearly out of line. Filers need to know what a legitimate deduction entails.

Carefully reading directions for completing forms and checking for accuracy and honesty will reduce the chances of an audit. Hiring a tax professional, specifically someone with tax resolution experience like our firm, can help you stay out of tax trouble.

If you need an expert tax resolution professional, reach out to us and we’ll schedule a no-obligation confidential consultation. Jeffrey Schneider, EA, CTRS will explain your options and help permanently resolve your tax problem.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax Problem Solutions as well as an Enrolled Agent and a Certified Tax Resolution Specialist.
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Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

The book is available in paperback and ebook on https://Amazon.com
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For more on SFS Tax Problem Solutions, visit: http://sfstaxproblemsolutions.com/
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