Tax Day 2022 may be the last thing you want to think about right now, but here’s one fact to put your mind at ease: You probably won’t get audited.
The number of tax returns reviewed by the Internal Revenue Service (IRS) is far lower today — particularly for wealthy Americans — than it was a decade ago, according to agency data. And the trend is expected to continue in 2022 as the agency continues to work through a massive, pandemic-induced backlog.
However, there are some things that could increase your chances of an audit.
“Low-income taxpayers ... if you compare their audit rate to everyone else, it was tons higher,” said Sue Long, co-founder and co-director of Syracuse University’s Transactional Records Access Clearinghouse (TRAC).
IRS data, obtained by TRAC, shows the agency is relying on mail audits of low-income Americans far more than ever before, and auditing those taxpayers more than wealthy Americans. TRAC found the lowest-income taxpayers are five times more likely to get audited than taxpayers who make more than $25,000 per year.
How does the IRS choose who to audit?
Long says many IRS audit decisions are a product of chronic underfunding. The agency's slashing of revenue agents over the last decade has left most wealthy taxpayers and corporations unchecked. But mail audits of simple, low-income tax returns have become a tool for the IRS to conduct more audits in less time.
“They just don't have the resources. ... That's Congress's fault,” Long said. “But the question becomes, while the IRS can't do everything, should it just pick taxpayers to audit because they're easy targets?”
Factor 1: Low income & Earned Income Tax Credit
TRAC found one box on your IRS form can dramatically increase your chances of getting a follow-up letter from the IRS: the Earned Income Tax Credit (EITC), which provides tax breaks for low- to moderate-income individuals and families.
According to a 2021 Department of Treasury report, 1 out of every 225 individual returns (0.4%) was examined by IRS staff, but nearly half of those belonged to low-income filers who claimed the Earned Income Tax Credit (EITC). The audit rate for individuals making less than $200,000 who did not claim the EITC was only 1 out of every 369 filers (0.3%).
TRAC found the number of mail audits surged in fiscal year 2021 to 85% of all audits and is on-pace to surpass that mark in fiscal year 2022. This is all while the number of face-to-face audits, including those of wealthy taxpayers, has plummeted about 90% since 1995.
“That's not the way we want our system to work at all,” Long said. “It will undermine taxpayer confidence in the long run if you go after the little guy [when] people that have a lot of money don't get audited.”
IRS Commissioner Charles P. Rettig told the House of Representatives' Ways and Means Oversight Subcommittee that TRAC’s reporting was “100% false” — a claim that was met with a challenge from TRAC to produce proof to counter the data TRAC says came from the IRS itself.
The commissioner did not respond to TRAC’s letter, nor did an IRS spokesperson provide any evidence to NBCLX to indicate TRAC’s reporting was wrong.
Factor 2: Income of more than $1 million per year
No group has seen their audit rates fall faster than America’s millionaires — once the top target for IRS revenue collectors. According to TRAC, audit rates for Americans making over $1 million a year fell by 66% since 2015. Audits of large corporations fell by similar margins.
That said, Americans who make more than $1 million a year are still roughly five times more likely to be audited than the average taxpayer. In fiscal year 2021, 1 in 45 tax returns showing $1 million in income was audited.
Factor 3: Cheating
Don't think that low audit rates are an endorsement to cheat; the IRS has automated systems in place to flag suspicious tax returns.
What are the penalties for cheating on taxes? Like most aspects of the U.S. tax code, penalties are complicated. But penalties for shaving a bit off the top of your tax bill could cost you exponentially more than the amount you'd save.
What happens if you get audited?
The confusion surrounding mail audits often compounds problems for low-income earners; 54% of mail audit recipients made less than $25,000 per year, and often don’t have tax experts at their disposal. They often can’t get through on IRS hotlines either.
“The IRS doesn't have enough staff,” Long continued. “You've given a number to call and unfortunately, they were so overwhelmed last year they didn't answer the phones. The call volume was just out of sight and it was exceedingly difficult to get through.”
Long says taxpayers who can’t connect with IRS support often fail to respond to their correspondence audits, resulting in penalties and additional financial problems.
How far back can the IRS audit you?
According to the IRS, the agency can request up to three years worth of documents from you. If agents identify a substantial error, they could request three additional years worth of documents. However, the IRS says most audits don’t go back further than two years.
How long does a tax audit take?
This is the million-dollar question in a world where the IRS remains bogged down with pandemic-related backlogs that could take years to clear.
Tax experts say an audit typically means three to six months of correspondence with the IRS. However, with the agency still slogging through all of its 2020 and 2021 paperwork, those timelines could be delayed, like most everything else these days.
Good luck this April.
Noah Pransky is NBCLX’s National Political Editor. He covers Washington and state politics for NBCLX, and his investigative work has been honored with national Murrow, Polk, duPont, and Cronkite awards. You can contact him confidentially at firstname.lastname@example.org or on Facebook, Instagram, or Twitter.