Yes, folks today is April Fool’s Day.  Which means to me, that if you have not yet gotten your ducks in a row and have provided your tax professional (sniff, sniff- not me?) your data, you qualify as a prime fool.

After all, we’ve handled the bulk of our clients by now.  And, if you were to bring your data to us now, you’d be presented with a bill that would be some 25- 100% higher than if you were ready to file in late January.  (And, you can bet we’re not the only firm that bills more as the filing deadline approaches.)

But, today we are going to talk about the likelihood of the IRS auditing your return.

Nowadays, instead of the knock at the door, the IRS audit is more likely to arrive by US Post. For the most recent year with data, some 70.8% of all audits relied on postal communications. And, even those terrifying queries are far less frequent than in past years.  After all, the GOP began choking off funds to the IRS back when PPACA (Patient Protection and Affordable Care Act, aka Obamacare) was passed- to preclude its abilities to police those who failed to sign up for the health care program.

Back at the turn of the decade, the IRS would effect more than 1.5 million audits.  (Actually, the IRS frowns upon the term “audit”; they prefer examination, since the taxpayer interacts with an ‘examiner’.)  For those taxes filed in 2017 (the last year with complete data), there were less than a million (933785, to be exact) audits.  That obtains despite the fact that even more tax returns have been filed over the years.  (196 million returns were processed, only 0.5% were selected for review; the year previous the audit incident rate was 0.7%)

The best way to find that one of your tax returns is being examined?  The IRS is already examining one of your other tax returns.  The second best way- submit a tax return that the computers can detect is “a little off”.  (You know, when you claim 43000 miles driven for business- that generated $ 60,000 in revenue.)

Another fact?  The more money you make, the better the chances you’ll be audited.  (Remember, that still means your chances of an examination are still pretty slim.) If your gross adjusted income is $ 200K or less, then about 1% (1 in 100) of those folks can expect a letter or call from the IRS.  [NOTE:  My  friend, Andy, wants me to explain this statement more carefully.  The IRS RARELY (one can NEVER say never) makes a call FIRST.  It would send a letter first and follow up with a call.  But, if the IRS does call- you will be informed who is calling and their ID number, so you can verify with the IRS that they are legitimate.  You won’t get a pre-recorded call. Period.]  When you exceed that income level, the examination rate rises to 4%, and by the time the income level exceeds $ 1 KK, the rate of audit requests rise to 12.5% (or 1 in 8 tax returns).

Oh, wait.   One more caveat.  For returns filed by mail (not electronically processed) or not processed via a computer, the error rates are much higher.  (This means the computer kicks our more of such returns.  The audit rate is about 21% for those paper returns filed by mail; 0.5% for those electronically prepared.)

The IRS has also backed off the old rule of holding on to tax data for 7 years- now they generally recommend that you retain data for 3 years from the date a return is filed- or two years when the tax has been fully paid- whichever is later.  Except, I am still telling you to hold on to those returns and data for 7 years.  Because IF the IRS elects to audit you, it won’t be atypical (if they find something wrong in the last 3 years of data) to go back 6 years.

And, then, what will you do?

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