According to accountinTODAY, most taxpayers envision Internal Revenue Service audits as intrusive investigations resulting in criminal
sentences. Today, nothing could be farther than the truth. The IRS’s auditing power has been greatly
diminished in the past decade. IRS audit resources have been reduced by 28 percent in the last decade and
the audit rate has dropped from 0.9 percent in 2010 to 0.5 percent in 2018. In fact, the number of IRS audits
in 2018 (991,168 audits) dropped almost in half compared to 2010 (1.735 million audits).
Since 2010, the IRS has been tasked with doing more with less resources, but the reality is that the IRS cannot do more audits with less resources. The IRS audit data reveals 10 trends from the past decade that have become the new realities for current state of IRS audits.
1. Most audits are done by mail - This trend started with IRS reforms in the late 1990s. In 1998, just before IRS reforms, the service audited 47 percent of taxpayers by mail. In the past decade, IRS data shows that the service prefers the less-intrusive mail audit. Today, three out of four audits of individual taxpayers are done by mail — a ratio that has held since 2010. These audits usually challenge small amounts of credits or deductions on a return, and require only a mail response, with documentation, to an IRS central campus location.
Since 2010, the IRS has been tasked with doing more with less resources, but the reality is that the IRS cannot do more audits with less resources. The IRS audit data reveals 10 trends from the past decade that have become the new realities for current state of IRS audits.
1. Most audits are done by mail - This trend started with IRS reforms in the late 1990s. In 1998, just before IRS reforms, the service audited 47 percent of taxpayers by mail. In the past decade, IRS data shows that the service prefers the less-intrusive mail audit. Today, three out of four audits of individual taxpayers are done by mail — a ratio that has held since 2010. These audits usually challenge small amounts of credits or deductions on a return, and require only a mail response, with documentation, to an IRS central campus location.
2. The main issue in audits: The EITC -
Fifty percent of all individual audits involve a taxpayer who is claiming the Earned Income Tax Credit. IRS efforts to curb EITC
errors largely rely on audits to hold a questionable EITC claim on a return. Politicians have criticized the IRS in the past for picking
on low-income taxpayers, and the EITC audit rate is their main evidence. Compared to other taxpayer profiles, the IRS clearly has
the propensity to address the EITC taxpayer more than other issues, even the small-business individual taxpayers.
3. An alarming amount of people do not respond to an audit
There is linkage here to the EITC mail audit. The Taxpayer Advocate reports that almost two-thirds of all mail audits go without
response or are assessed by taxpayer default. That is, the IRS just assesses the additional tax without the taxpayer contesting the
service’s determination. Only one in five taxpayers agree to their mail audit adjustment — and likely, from the data, they don’t
understand how to appeal. This mess leads to many audit reconsiderations (i.e. an audit “re-do” request). Again, more question
marks here for the targets of mail audits — the low-income population.
To be continued in parts II & III.
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