Sponsorship Spotlight: Don’t Be Complacent With IRS Audits – My Edmonds News

Audit rates reported by the IRS continue to be low…very low. But that is changing with thousands of auditors hired for a post-pandemic boost in their exams.

So don’t be complacent. A closer look at the IRS data release reveals some audit pitfalls you should be aware of.

Audit Rate Statistics for Individuals

Source: IRS data books with 2019 audit numbers updated to May 26, 2022

• Fewer audit reviews mask the reality that you may still have to deal with problems detected by the IRS’ automated computer systems. Although not as daunting as a full audit, you will need to keep your records handy to resolve any issues.
• Average rates are down, but audit risks are still high at both ends of the income spectrum: taxpayers with no income and taxpayers with high incomes.
• Taxpayers with no income are the target of audits because the IRS is cracking down on fraud in refundable credits designed to help low-income earners, such as the Earned Income Tax Credit (EITC). And although not in the charts, 87% of labor tax returns that are audited had an additional tax applied!
• High-income taxpayers have long been the target of IRS audits. This group, however, has seen a sharp drop in audit rates during the pandemic. Yet taxpayers with incomes over $500,000 are more than twice as likely to be audited as low-income taxpayers. Not only do these taxpayers tend to have more complicated tax filings, but the vast majority of federal income tax revenue comes from them.
• Complicated claims are more likely to be verified. Returns with large charitable deductions, withdrawals from retirement accounts or college savings plans, and small business expenses (using Schedule C) are more likely to be the target of an audit. the IRS.

stay ready
Always keep your tax records and supporting documents for as long as you need them to support claims on a return. The IRS normally has a three-year window from the filing date to verify a return, but this can be extended if the agency believes there is fraudulent activity.
If you receive an audit letter from the IRS, it is best to seek help as soon as possible

Nancy Ekrem

— By Nancy J. Ekrem, CPA
Managing shareholder
Chartered Accountants and Business Consultants
[email protected]


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