For more than a decade, the IRS has been auditing fewer returns as more tax seasons come and gone. This is a good sign for the taxpayer, but these slowed-down audit rates have a much bigger effect on higher-income filers than on those who earn middle to lower-income.
Overview
According to a report that was released by the Government Accountability Office, in the last decade, the IRS has been auditing taxpayers with incomes of $500,000 or more at a higher than average rate. For the most part, every other income level has seen a steady decline in audit rates in the last 10 years. The same report also stated that people with incomes of $200,000 or more saw their audit rates fall the most in the last decade.
IRS Suffering Lack of Audit Resources
Officials from the Internal Revenue Service were quick with explanations for the decline. The main blame for the decline should be placed on the agency’s staffing shortages and lack of other resources such as up-to-date technology, according to the IRS.
In further explanations, the IRS officials said that a lot of time and expertise are required to handle these complex audits. Lower-income audits don’t require as many resources, which makes it easier for the IRS to automate the process of certain audits but not all of them.
Steady Decade Decline
The same report that was provided by the Government Accountability Office also stated that from the years 2010 to 2019, individual income tax return audit rates fell from 0.9% to just .25% on average. Although the biggest decrease in audit rates was seen for people with higher incomes, the IRS still audited them at a higher rate than compared to lower-income filers.
Audit Rates Raised for EITC Claimers
The GAO report showed that people who claimed the Earned Income Tax Credit were audited at a higher than average rate this past decade. This is due to the few resources required for those types of audits, as well as the effectiveness of these audits in preventing ineligible filers of the EITC.
“Auditing requires auditors to properly respond to taxpayers with increasingly complex business and investment activities,” wrote Douglas O’Donnell, deputy commissioner of services and enforcement at the IRS, in response to the report. “Greater complexity requires greater sophistication and skill as well as applying more time to perform the necessary review of information and to properly apply the law. The more complex the audit, the more time is required of our most experienced auditors and others involved (e.g. international and valuation) and Chief Counsel. The IRS has lost to attrition many thousands of employees, including those with the most sophisticated skills. We have been unable to replace them due to shrinking appropriations.”.
Lawmakers Upset With GAO Findings
House Ways and Means Subcommittee chair Bill Parcel revealed his concerns regarding the report.
“The findings by the GAO on IRS auditing rates are another five-alarm fire bell for our national tax system,” Pascrell said in a statement Tuesday. “Over the last decade, accountability for the wealthiest tax cheats has plummeted so far it almost hits the floor. Looking at the numbers, a tax filer making less than $25,000 a year is more than twice as likely to be audited as someone with between $200,000 and $500,000 in income. I worry well-off taxpayers are not going to be pursued at the rate things are going.”
Wrap Up
Many lawmakers are certainly stunned by the findings of the GAO report. This also makes it even more unclear as to how intense audits will be next year, as the IRS was given a budget increase, with some of it purposed to enforce tax compliance. On the other hand, the IRS just shredded about 30 million unprocessed paper information returns which are typically utilized to enforce tax compliance. With so many contradicting actions happening in such a short time frame, it may be smart to speak with your accountant or advisor to ensure you are taking the correct steps to protect yourself from an audit.