What are my odds of being audited?
Audit coverage rates are at low levels, the IRS has reported.
According to the IRS, the audit coverage rate for individuals fell 16
percent from FY 2015 to FY 2016. The 0.7 percent audit coverage rate for
individuals was the lowest coverage rate in more than a decade, the
The raw audit numbers, of course, do not answer the more specific
question regarding “my chances of being audited by the IRS.” The IRS
does very little random selection of returns for being audited these
days. Computer analysis flags certain suspect items but, there again,
randomly. For example, taking the home office deduction increases a
taxpayer’s odds of an audit on the item, but odds remain that it still
will not be pulled for audit. Another “audit trigger” is not reporting
income for which an information return (Form 1099-MISC, for example) has
Audit campaigns. The IRS Large Business and
International (LB&I) Division has revealed new corporate compliance
campaigns. The campaigns, as explained by LB&I, offer “a holistic
response to an item of either known or potential compliance risks.”
Whether “audit campaigns” will be initiated within the other major IRS
divisions in part will depend upon the success of the LB&I
division’s rollout. So far, IRS leadership appears optimistic over its
The campaigns currently address:
Automatic Underreporter Program. The IRS
reported that the Automatic Underreporter Program continues to generate
significant revenues. The agency closed more than 3.5 million cases
under the Automatic Underreporter Program, generating some $6.8 billion
in additional assessments. Further, the IRS closed nearly 400,000 cases
under the Automatic Substitute for Return Program, generating some $600
million in additional assessments.
- Code Sec. 48C energy credit;
- Offshore voluntary disclosure program declines and withdrawals;
- Code Sec. 199 domestic production activities deductions;
- Micro-captive insurance;
- Related-party transactions;
- Deferred variable annuity reserves and life insurance reserves;
- Basket transactions;
- Completed contract method of accounting;
- TEFRA linkage plan strategy;
- S corporation losses claimed in excess of basis;
- Form 1120-F Nonfiler.
Comment. Intertwined with audit selection
are the shrinking resources available to the IRS to conduct audits.
President Trump has proposed a $239 million reduction in the IRS’s
budget for fiscal year (FY) 2018.Audit Coverage StatsIndividuals. The audit coverage rate for
individuals for FY 2016 was 0.7 percent. The audit coverage rate
increased for higher income taxpayers: 1.7 percent for returns reporting
more than $200,000 in income and 5.8 percent for returns reporting more
than $1 million in income. Nearly 800,000 of individual audits in FY
2015 were correspondence audits. Some 240,000 were field audits. In
total, the IRS audited roughly 1.03 million of the nearly 148 million
individual returns filed.
Corporations. The audit coverage rate for
corporations (excluding S corps) for FY 2016 was 1.1 percent. Here, more
audits were field audits than correspondence exams. Some 19,000 were
field audits and roughly 1,800 were correspondence audits.
Partnerships and S corps. For partnerships,
the audit coverage rate for FY 2016 was 0.4 percent. The IRS audited
roughly 15,000 of the 3.9 million partnership returns received. The
audit coverage rate for S corps for FY 2016 was 0.3 percent. Of the
approximately 4 million S corp returns received, the IRS selected some
16,000 for audit.