Audit Rates Continue to Decline Amidst Big IRS Challenges

The IRS has one mission: “to provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” But in furthering this goal, the IRS must implement tax law changes (e.g., changes under the Affordable Care Act, the Tax Cuts and Jobs Act, and other legislation), help taxpayers file returns, and collect taxes, including through audits. Despite this herculean task, during the government’s 2018 fiscal year ending September 30, 2018, the IRS collected nearly $3.5 trillion, processed more than 250 million returns and other forms, and issued nearly $464 billion in tax refunds (2018 Internal Revenue Service Data Book at https://www.irs.gov/pub/irs-soi/18databk.pdf). But because of all of its responsibilities, the rate of audits conducted has gone down.

The audit rate on individuals in fiscal year 2018 declined to an overall average 0.6%, down from 1% in fiscal year 2013. The FY 2018 audit rate for individuals with income of at least $200,000 but under $1 million that included business income was 1.4%, down from 3.2% in FY 2013. For returns with income of $1 million or more, the FY 2018 audit rate was 3.2%, down from 10.8% in FY 2013. Audit rates for Schedule C filers are also down:

Of the almost one million audits in FY 2018, 74.8% were conducted via correspondence, and almost 30,000 resulted in additional refunds to taxpayers totaling $6 billion.