The thought of getting a notification that your tax filings are under review by the Internal Revenue Service (IRS) may cause you to break out into a cold sweat. But how common are these reviews? How worried should you be?
Overall, the IRS only audits approximately 1 percent of all tax returns. At first glance, that may seem like pretty good odds that your returns are in the clear, but keep in mind 1 percent of all tax returns translates to over 900,000 taxes that are audited every single year.
As noted in a previous blog post, there are certain things that tend to increase the risk of an audit. These factors can include reporting a high income and large deductions on tax returns. Based on an analysis of data from the IRS, those who report an annual income of over $500,000 are at a substantially higher risk of an audit compared to those with a lower income. In this higher bracket, 27.55 percent of all tax returns are subject to an audit. This means almost 40 million of the approximate 150 million filed tax returns for individuals within this bracket for the 2016 tax year were subject to an audit.
If audited, tax payers can find themselves responsible for a hefty penalty. Additional tax requirements can range from an average of $6,014 for audits conducted via mailings to $21,918 for those conducted through IRS agents that complete an in-person audit.
It is important to state that tax payers face new challenges every tax year. The information provided above is based on the most recent data from the IRS, for the 2016 tax year. The statistics for the 2017 and 2018 tax years will likely be different. Regardless, anyone attempting to navigate these issues can take steps to help mitigate the risk of a surprise tax bill. An attorney experienced in these matters can help.