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Rolling the dice: What are the odds you will be audited by the IRS?

Unlike a Las Vegas casino, the Internal Revenue Service (IRS) is pretty open about your odds of winning the audit lottery. Each year the service publishes data on its own activities for the prior year. According to the report, out of 143,399,737 individual returns filed in 2011, 1,481,966 were audited. That equates to 1.03% or roughly one out of every one hundred returns that were filed. Just to put that ratio in perspective, your chances of winning the California lottery (which is, by the way, a taxable event) are 1 in 15 million or 0.0000067%.

During 2012, 32.9% of the IRS audits conducted (487,408) were of returns claiming an earned income tax credit.

Here are the odds for other income tax filers:

  • Individuals filing farm returns  
    • Of the returns showing farm (Schedule F) income, 0.5% were audited in FY 2012 versus 0.6% in FY 2011.
  • Individuals showing income between $200,000 and $1 million
    • 2.8% of returns not showing business activity were audited (compared to 3.2% for the prior year).
    • 3.7% of returns showing business activity were audited. (3.6% of these returns were audited in fiscal 2011.)
  • Partnership and S Corporation returns
    • 0.5% of the returns filed in 2012 were audited versus 0.4% the year before.
  • Corporate returns other than Form 1120S
    • 1.5% of the returns were audited, which is the same percentage as the prior year.

In addition to the general statistics shared above, the IRS is known to periodically target specific industries and even specific deductions. Who can forget the recent focus on winery LIFO deductions that occurred throughout the Napa Valley?

Please contact us for assistance in dealing with a state or federal tax audit in the event your number comes up.