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.