It is hard to believe that in these times of financial recovery that the odds of a business being audited by the Internal Revenue Service have dropped consistently in the last few years. This may not be so hard to believe in light of the fact that the number of individuals employed by the IRS has fallen by 8% and funding has been cut by nearly 10%. However, during this same time period, the number of annual returns being filed has increased 4%. The increased volume of returns being filed, coupled with the decreases in IRS employment and funding are contributing factors to the diminishing odds of an IRS audit selection. In 2014 taxpayers saw these odds drop to the lowest they have been in eleven years.
In 2014, of the near ten million business returns filed, only fifty seven thousand (.57%) were audited by the IRS. This percentage is a decrease from 2013, when .61% of all business returns were audited. Large corporations (defined as those businesses with more than $10 million in assets) seemed to have the highest audit risk with 12% of returns filed audited. This number is down by 6% from 2012. Subchapter S returns had the lowest audit percentage in 2014 at .36% with only 16,317 of the 4,518,765 returns being subject to audit. On the individual side, statistics show that less than 1% of all individual returns will be audited in 2015.
Internal Revenue Service Commissioner, John Koskinen, indicates that the decrease in audits directly corresponds with the reduction in IRS funding and staffing. The IRS commissioner also notes that there are currently under 12,000 IRS auditors, which is the lowest level employment has been in over ten years. Koskinen is hoping for a $2 billion budget increase in 2016.
Without an increase in IRS staffing and funding, the amount of individual and business returns that become subject to an audit will continue to decline. With the increasing number of returns filed each year, it will be nearly impossible for the IRS to uphold previous levels of enforcement. Considering the IRS accounts for nearly 90% of the government's revenue, this is an area that would seem to need immediate attention.
Should you have any questions or issues related to the information included in this article, please contact your Marcum Tax Professional.