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Rumors of low audit rates exaggerated

Article after article on the Internet states that the odds of a federal audit by the Internal Revenue Service (IRS) are extremely low. Unfortunately, these stories overestimate the rate of audits conducted by the IRS.

The stories often quote the follow statistic: only “one out of 143 tax returns are audited every year.” If true, this translates to an audit rate of approximately 0.7 percent. Or, as noted in a recent piece by Accounting Today, a 1:23 chance of getting audited.

This official audit rate is not the full story. The IRS can conduct audits in a number of ways, including automated audits. Automated audits are generally not included in these statistics. As such, the actual risk of becoming the subject of an audit is much higher than reported.

How much higher is the risk of an audit? The IRS reports that it only conducted 1.56 million audits in 2011. During that same tax year the agency used the automated audit system to question an additional 11 million returns.

The IRS will use the information gathered during the automated audit to determine if a more thorough audit is required.

What happens if you are the subject of an audit? An audit is, essentially, a review of your tax filings. Serious penalties can apply if the IRS determines that there are discrepancies. These penalties can include hefty fines or, depending on the severity of the allegations, prison time.

As such, it is wise to take any notification of an audit — actual or automated — seriously. The experienced attorneys at Goldburd McCone, LLP can help by gathering evidence to support the questioned filings.

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