For six straight years, the number of audits conducted by the Internal Revenue Service has decreased.
In 2016, the rate at which people were audited fell 16% from the previous year, with about 0.7% of all taxpayers facing higher scrutiny of their returns. Digging deeper into the statistics, one can see that the higher the taxpayer’s income, the greater the chance of being audited. For example, taxpayers earning over $200,000 per year were audited at a rate of 5.8%, meaning they were over eight times more likely to be audited than the population as a whole.
This good news for some taxpayers appears to be a consequence of decreased funding to the agency. The budget for the IRS has shrunk by $1 billion since 2010. According to IRS Commissioner John Koskinen, the funding cuts have resulted in 7,000 enforcement agents being let go, along with 10,000 support staff. Koskinen estimates that as much as $4 billion in taxes will go uncollected as a result of the decreased funding. “We are the only agency if you give us more people and money, we give you more money back,” he lamented to The Associated Press.
While the future funding of the IRS may not improve in the short-term, it’s worth remembering that the agency can generally audit the last 3 years of taxes but will go further back if a substantial error is found. Taxpayers should not be tempted to cut corners or exaggerate on their returns because of this—very likely temporary—reduction in the rate of audits. As always, the safest approach to doing your personal or business taxes is to be honest, thorough, and to enlist the help of qualified accountants and tax professionals. For more information on how Nawrocki Smith can help you stay on the right side of the tax code, no matter which way the political winds are blowing, contact us.
Nawrocki Smith LLP
290 Broad Hollow Road, Suite 115E
Melville, New York 11747
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