IRS Audit Rates Are Down But Don’t Get Too Excited

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Tax cheats, the odds have been slightly in your favor.

Strapped by budget cuts and staff reductions, the Internal Revenue Service audited fewer people last year than it has in more than a decade, according to new agency data. The IRS audited a little more than 1 million individual tax returns in 2016, the lowest amount since 2004. The number of audits declined 16 percent from the year before, marking the sixth straight year of declines.

Taxpayers at all income levels have become less likely to have their tax returns flagged for an audit, with only 0.7 percent of 147 million individual tax returns audited last year, down from 1 percent in 2007.

The IRS has long cautioned that budget cuts hitting the agency in recent years could leave it with fewer agents to catch missteps and collect revenue. The agency lost more than 17,000 employees since 2010, including 7,000 enforcement agents, the agency said.

While the IRS has lost some manpower, tax experts say that you may want to think twice before throwing the confetti and testing the waters by leaving off income or exaggerating tax breaks.

“I certainly would not advise anyone to try to beat the IRS,” says Tony Reardon, national president of the National Treasury Employees Union, which represents IRS employees and workers from other federal agencies. “There are certainly mechanisms in place to deal with folks who decide they’re not going to pay.”

For example, people with simple tax returns should remember that the IRS already knows how much they made last year. Employers and investment firms report wage and income data that is included in your W-2 form and 1099 forms directly to the IRS. So chances are high that you won’t get away with leaving a 1099 off of your tax return.

The agency also has systems in place for spotting taxpayers who claim tax credits that are disproportionate to their income, says Melissa Labant, director of tax policy and advocacy for the American Institute of Certified Public Accountants. For example, the IRS may look into taxpayers who claim much more in charitable contributions than other taxpayers at similar income levels, Labant says.

The IRS also uses correspondence audits, or letters, to ask taxpayer for more information about a small business loss or to clarify a mismatch on their tax returns, says Brent Lipschultz, a partner with the personal financial service practice at PwC. (That is opposed to field audits, which require taxpayers to meet with an IRS agent face-to-face.)

The bottom line?

“Taxpayers should behave no differently than the way they behaved 10 years ago,” says Lipschultz. And if they do get an audit letter in the mail, they should be patient, he says. Budget cuts mean the IRS is also taking longer to complete those audits than they used to.

(c) 2017, The Washington Post · Jonnelle Marte 

{Matzav.com}

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