One of the greatest fears of taxpayers is facing an audit by the Internal Revenue Service. Many clients we have represented in IRS audits liken the experience to going to war. There is the mentality of “us vs. them”. And this mentality is often warranted. Even though virtually every Federal agency is under budget scrutiny in Washington, the IRS has been provided with additional resources to add personnel to conduct taxpayer audits.
Back in the late 90’s, Congress was very critical of the IRS for aggressive collection tactics used on individual taxpayers. Staff and budgets cuts followed. Now, the IRS has been given initiatives to grow. The 2012 budget calls for a 9% increase in funding. Administrators are looking to spend $339 million with the goal of raising $1.3 billion from taxpayers. The IRS states that about 84% of taxes are paid voluntarily. The difference is the gap they aim to reduce.
In 2006, tax returns with $1 million or more of income were audited 5.25% of the time. By 2010 this rose to 8.36%. Similar percentage increases exist for taxpayers with lesser income. Businesses with less than $10 million of assets were audited just 0.32% of the time in 2004. By 2010, that percentage almost tripled to 0.94%.
Many of these audits will be correspondence audits. That is, rather than having to go in and meet with an IRS agent, requested information is mailed to the IRS. Correspondence audits are less expensive for the IRS to conduct and are becoming more frequent. Of more than 1.6 million audits conducted last year, 78% were correspondence audits. This represents a 13% rise in audits from 2009, and a 93% increase from 2003.
While the chance of being audited may be minor, taxpayers should be aware that the possibility of selection is increasing. Compliance and documentation are key factors in navigating your way through an audit successfully. Please contact us with any questions you may have regarding your status, or if we may assist you with any audit examination matters.
CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at if you have any questions about this posting or if I may be of assistance in any way.