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This article was fact-checked by our editors and reviewed by Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®. It has been updated for the 2019 tax year.
Do the words “IRS audit” strike fear in your heart?
Perhaps dread of an audit affects how you file your federal income tax return. If so, you’re not alone.
According to the 2018 Comprehensive Taxpayer Attitude Survey by the IRS, 79% of taxpayers say their fear of being audited is one of the factors that help keep them honest when filing their federal income taxes. And 96% of people from the same survey say that their personal integrity is another factor.
Of course, sometimes your fears are irrational. You can be totally honest on your tax return, and diligent about filing it and paying your taxes on time, and still fear being audited by the IRS.
The good news is, your fears probably far surpass your actual chances of being audited.
- How many people actually face IRS audits?
- Who’s getting audited?
- How much more might this cost me?
- What might trigger an IRS audit?
- What happens during an IRS tax audit?
- Can I reduce my risk of being audited?
- What are some tips for surviving an IRS audit?
- What are my rights when dealing with the IRS?
Typically, the IRS audits less than 1% of all tax returns filed in a fiscal year.
For example, the IRS audited 0.6% of all individual tax returns filed in 2017 and 0.9% of corporate income tax returns, excluding returns from S corporations, or S-corps.
And while the IRS received 196 million tax returns that year, it audited just 1 million within the following year. During the 2018 fiscal year audits, nearly 75% of audits were handled through correspondence. About 25.2% of return audits happened on the “field” — the dreaded face-to-face audit with an IRS agent.
Most audits happen to high earners. People reporting adjusted gross income (or AGI) of $10 million or more accounted for 6.66% of audits in fiscal year 2018. Taxpayers reporting an AGI of between $5 million and $10 million accounted for 4.21% of audits that same year.
But being a lower-income earner doesn’t mean you won’t be audited. People reporting no AGI at all represented the third-largest percentage of returns audited in 2018 at 2.04%.What is adjusted gross income?
Only 3% of audits in 2018 resulted in the IRS issuing an additional refund to the audited taxpayers. The majority of audits resulted in filers (both businesses and individuals) facing assessments of additional tax.
For those individual taxpayers who did wind up owing more, the average additional amount they had to pay was $6,356 for those who faced correspondence audits, and $26,307 for those who went through a field audit.
So while your chances of an IRS audit may be slim, if you do get audited, you could end up owing more federal income tax — and it could be a significant sum.
Let’s look at some issues that could trigger an audit.
The IRS could select your return for auditing for multiple reasons. It notes that being audited doesn’t necessarily mean there’s a problem with your return, or that you’ve been dishonest.
There could be a number of reasons for the IRS to audit your return.
- A computer scoring program assigns a numeric score to each individual and some corporate tax returns after they’ve been processed. If your return is selected because of a high score under this program, an examination of your return will probably result in a change to your income tax liability.
- Information on third-party documents, like a W-2 or 1099, doesn’t match what you’ve reported on your return.
- An item on your return is questionable.
- Information from sources such as public records, newspapers or individuals indicates potential noncompliance with tax laws or inaccuracies on your tax return. The IRS assesses the reliability and accuracy of such sources before acting on the information from them.
If your return is selected for auditing, the IRS will send you an audit letter by mail with instructions for what to do next and contact information for who to communicate with at the IRS. It will never deliver the first audit notice through a phone call.
Depending on the type of audit you’re facing, the IRS may manage the examination by mail or in person. An IRS agent can interview you in your home, place of business, the office of your tax preparer or in an IRS office.
If you face a correspondence audit, follow the written IRS request for any documents or information required. And the IRS recommends you request confirmation of receipt from whatever delivery service you choose for your correspondence.
Generally, the IRS can include returns from the previous three years in a tax audit, and usually doesn’t go back more than six years. But there can be exceptions.
Nothing can guarantee you never get audited. But you can take steps to reduce errors on your tax return. While making mistakes on your tax return might not result in an audit, errors can mean the IRS needs to take a closer look at your return. Plus, mistakes can slow down receipt of any refund you may be owed.
Filing electronically is the top recommendation from the IRS for how to reduce errors on your tax return. States like e-filing, too. In fact, Indiana’s Department of Revenue offers some statistics that are a case study for the advantages of e-filing.
- In 2013, 78% of Indiana taxpayers e-filed, and 98% of those e-filed returns were free of any errors.
- Up to 20% of paper returns filed in the same year had errors, including math errors, over-claiming of deductions and credits, and omitted documents, such as W-2s.
Free online tax preparation services like Credit Karma Tax® help reduce math errors, ensure deductions and credits are within allowable limits, and identify items on your return that could cause the IRS to reject it. Plus, services generally won’t allow you to file without including all required information.
Getting audited will never be fun, but if the worst happens, you can survive it.
First, be aware that the IRS generally tries to audit returns in a timely manner — usually within two years of filing. But it can include the previous three years’ worth of returns in an audit, although a substantial error might make it look farther back. Usually, six years is the maximum.
If your return has been selected for audit, the IRS will first notify you with a letter that will tell you what you need to do to respond. The IRS will not call, email or text you to notify you of an audit. It’ll manage the audit either through the mail or an in-person interview.
If the IRS needs specific documents from you to conduct the audit, it will request them in writing. You can send physical documents to it through the delivery service of your choice, but the IRS recommends you get some type of delivery confirmation from the service. This will help ensure the IRS gets what you’re sending it.
Feel like you need more time to respond to a letter request for information? The IRS can generally grant an automatic 30-day extension, but you’ll need to send your request via fax to the number on your IRS letter, or mail it to the address on the letter. For in-person audits, you can communicate your request for an extension to the auditor handling your case.
How long your audit takes depends on multiple factors, including the following:
- How complex the issues are
- How quickly you can provide any information requested
- Your and your auditor’s availability for scheduling any necessary in-person meetings
- Whether you agree or disagree with the IRS’ findings
After the audit is done, the IRS may decide that it doesn’t need to make any changes to your tax return and tax bill. Or it may decide that changes are needed. You may agree with those changes and make arrangements to pay any additional tax you owe. Or you may disagree.
When you disagree with the audit results, you can ask for a conference with an IRS manager or request mediation. You may be able to file an appeal if you still have time to do so under the statute of limitations.
Interestingly, it seems most taxpayers trust the IRS to do the right thing. According to the 2018 Taxpayer Attitude Survey, 71% of taxpayers say they trust the IRS to fairly enforce tax laws.
It may be comforting to know you also have rights when it comes to paying taxes and facing an audit. The Taxpayer Bill of Rights explains your rights. Elements of those rights that could apply when you’re facing an audit include the following:
- Clear explanation of tax laws, IRS procedures, IRS decisions about your tax accounts and outcomes of those decisions
- Prompt, courteous and professional treatment from the IRS
- Clear and understandable communications
- The opportunity to challenge the IRS’ position, and to appeal its decisions, including taking the case to tax court
- Representation by either yourself or an authorized representative of your choice
The chances of an IRS audit may be very low. But if you still fear the possibility of being audited, you can take steps to ensure your tax return is as trouble-free as possible. E-file to reduce the risk of errors, double check everything on your return before filing, and be sure to file and pay any tax you owe by the filing deadline. And if having audit defense will give you peace of mind, remember you don’t have to pay for it. Credit Karma Tax®, which is always free, also offers free audit defense for filers.
Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.