Are Declining IRS Audit Rates Providing a Credible Audit Deterrent?

By William R. Stromsem, J.D., CPA, Assistant Professor, Department of Accountancy, George Washington University School of Business

 

The average audit rate for all individual income tax returns has declined to 0.25% according to a GAO report to the House Ways and Means Oversight Committee. This is a continuing downward trend from 0.9% in 2010.

The IRS attributes this decline to staff and budget shortages. Things do not look much brighter for the future, with 15% of the IRS’ auditors expected to retire in the next three years.

Audit rates decreased the most for taxpayers with incomes of $200,000+ because those audits require more time and expertise for the more complex issues.

Also, there were fewer field and office audits because of the pandemic. Almost all audits were more-automated, less-intrusive correspondence audits. 

With such a low audit potential, the unspoken question is how low can it get before it loses credibility to the extent that otherwise honest taxpayers are tempted to take questionable positions on returns in the hope of not being singled out for an audit? For CPAs, the issue is whether their attention to compliance detail will be appreciated as much by taxpayers who are tempted to play the audit lottery.

Comments

[Dean Wynn]

We specialize in representing clients in IRS audits nationwide for 25 years and find that while the % of audits decline over the years, the auditors are less trained but more aggressive than ever, looking for every possible excuse (sometimes they don't even bother to hide their intentions) to deny most, if not all deductions and expand to 3 years or more for no apparent reason, all with the full support of the audit managers and directors. The implication of this is that those poor "victims" that happen to be within the reach of of an IRS auditor is going to be in a world of hurt because the IRS is trying hard to "assess" the same amount of national annual tax dollars on the fewer taxpayers that cross their paths. Lately, we have to appeal these cases to Tax Court more and more to get "justice." On the other hand, we also notice that the tax preparers are more careless (if not downright fraudulent) and the taxpayers are less prepared for an IRS audit, perhaps because they think that the chance of getting audited is less likely.