Audit Misconceptions

AUDIT MISCONCEPTIONS WHAT EXACTLY IS AN AUDIT, AND HOW LIKELY ARE YOU TO RECEIVE ONE? Many taxpayers are afraid of an IRS agent showing up on their doorstep, but put your mind at ease. History shows that only 1 percent of individual taxpayers receive an audit every year and most of these audits are sent via mail, simply requesting backup documentation. THE IRS Chances of being audited The IRS received 187 million returns and audited only 1.7 million of these in fiscal year 2010. However, only 1 percent of the majority of individual earners are audited. TOTAL NUMBER OF IRS AUDITS ON INDIVIDUAL TAX RETURNS, FY 2009-2011 2009 Total returns filed prior CY: 138,949,670 Total audits conducted: Percentage audited: 1,425,888 1.03% 2010 Total returns filed prior CY: 142,823,105 Total audits conducted: Percentage audited: 1,581,394 1.11% 2011 Total returns filed prior CY: 140,837,499 Total audits conducted: Percentage audited: 1,564,690 1.11% AUDIT RATES BY TAX FILING TYPE, FY 201O INDIVIDUALS AUDIT PROBABILITY: NUMBER OF AUDITS: Individuals earning over $1 million |32.494 8.4% O Individuals earning 2.7% O 120,481 $200,000-$1 million 1.1% All individuals 1,581,394 Individuals earning under $200,0o00 1,428,419 BUSINESSES AUDIT PROBABILITY: NUMBER OFE AUDITS: Corporations with assets over $10 million 14.2% 10,207 Corporations with assets under $10 million 0.9% 19,127 All businesses 58,067 0.6% S corporations and partnerships | 28,733 0.4% The IRS likes to go after big corporations, and for good reason Audits of large companies with assets over $250 million.. .recovered $28.6 billion in 2009. $ Audits of all other companies recovered $1.8 billion. MONEY RECOVERED PER HOUR SPENT AUDITING Large" companies: $9,354 Small/midsize companies: $1,025 *assets over $250 million Types of Audits: Not All Should Be Feared Most audits are conducted via mail. Taxpayers may think they are being audited, but are just receiving an adjustment on their taxes. There are also examinations, which are audits by mail, that just request backup documentation. 78% 22% In 2010, 78 percent of those audited dealt with the IRS via mail correspondence, while 22 percent came in for an in-person exam. 1. The Mail Audit The IRS will send a letter simply requesting an explanation or additional information and backup documentation. While not an audit, you may receive an "Automatic Adjustment Notice" that simply states that the amount of taxes you owe the IRS was adjusted. 2. The Interview Audit (Examinations) In very rare cases, a taxpayer may be required to appear at an IRS office with the receipts and backup documentation to support their tax report. 3. The Field Audit The IRS schedules field audits at a select few taxpayers homes or businesses. This is the usual form of audit for small businesses or businesses operated from home. 4. The Correspondence Audit This will usually require you to provide information, supporting evidence about very specific claims made on your tax report, or a check for unpaid taxes. SOURCES: IRS.GOV, 2011 TURBOTAX.INTUIT.COM, 2011 TurboTax. Choose Easy.