The IRS has chosen you for an audit. The mere words strung together can cause just about anyone to curl up in a small ball and tremble in fear like a gerbil. For some people, being audited might just to be one of the scariest experiences someone could go through in his or her lifetime. While being audited by the IRS could be a horrible experience, the good news is that overall the number of audits that the nation’s top tax agency is now performing has shrunk. According to the IRS, due to continued budget cuts and a reduced workforce, the number of taxpayers being audited each year will continue to decline. However, there are two interesting side notes to the numbers and they are definitely related.
The Rich Get Richer
Although the total number of audits has declined the risk of being audited has shifted and it has squarely landed on the middle class. In fact, according to the IRS, Americans who earn more than $100,000 a year used to have a higher risk of being audited. However, those families and individuals have recently seen their risk of being chosen for an audit fall by 8 percent. On the other hand, families and individuals who make less than $100,000 a year now face a 17 percent greater chance of being audited by the IRS. So why the shift? Shouldn’t the IRS continue to focus on the higher earners?
Product of the System
In reality, it’s not necessarily that the IRS has shifted its focus away from wealthier taxpayers to lower income individuals and families, but rather it’s a byproduct of the budget cuts. Most lower or middle-income families typically get audited because they do not report enough income from their wages or Forms 1099-MISC. The reason that matters is because the IRS uses several automated systems to process less-complicated tax returns. These automated systems can easily catch these types of errors.
It All Comes Down to the Workforce
So shouldn’t these systems catch the same errors on tax returns from the upper class? Yes, of course they should, and they do. However, the difference is, generally speaking, people who make less than $100,000 a year file much simpler tax returns than higher income taxpayers. Conversely, people who make more money tend to file more complicated returns; and those returns cannot be processed by these automated systems. So, because the IRS has a smaller workforce it cannot find as many returns amongst the upper class that need to be audited. On the other hand, because more returns filed by lower and middle-income taxpayers are processed automatically, more of these returns get chosen for an audit.
Obtaining Professional Help
Another reason wealthier tax payers tend to avoid audits better than the middle class is because they can afford to pay experienced tax professionals to do their taxes for them. That means they are more likely to file a return that is free of errors. Thus, upper class taxpayers are again less likely to be chosen for an audit because they are more likely to submit an accurate return the first time and thereby avoid catching the IRS’s eye for any impropriety.
Will You Be Chosen?
So yes, while it may seem unfair that the middle class now has a greater risk of being audited by the IRS than the upper class, there appears to be no other way to remedy this situation besides increasing the IRS’s budget. Otherwise, it appears that more high-income earners will have less to worry about at tax time, while more people in the middle class could be seeing those dreadful words: “The IRS has chosen you for an audit.”