The Internal Revenue Service audited only 0.59% of individual income tax returns last year, the lowest audit rate since 2002, according to the IRS 2018 Data Book released today. A closer look shows that it’s the highest earners whose audit rate has dropped the most.
For the highest income taxpayers—returns showing adjusted gross income of $10 million or more–the audit rate dropped from 14.52% in 2017 to just 6.66% in the latest report.
For households with AGI between $5 million to $10 million, the audit rate dropped from 7.95% to 4.21%.
For households with AGI between $1 million to $5 million, the audit rate dropped from 3.52% to 2.21%.
For households with AGI between $500,000 to $1 million, the audit rate dropped from 1.56% to 1.1%.
For households with AGI between $200,000 to $500,000, the audit rate dropped from 0.70% to 0.53%.
By comparison, for households with AGI under $200,000, the audit rate dropped slightly, stayed the same, or climbed (from 0.48% to 0.54% for $50,000 to $75,000 AGI households).
The report covers data from returns filed in calendar year 2017 and audits in fiscal year 2018. The nearly 1 million audits the IRS completed included more than 892,000 individual income tax returns.
It’s not a surprise that audits are dropping overall. The IRS’ budget is smaller these days and its staff of enforcement workers is lean. Technology upgrades and enforcement wherewithal are among the agency’s most pressing funding needs.
In her recent annual report to Congress, National Taxpayer Advocate Nina Olson listed audits (correspondence exams, field exams and office exams) among the nation’s most serious tax problems. Audits by mail don’t appear to be effective in promoting future compliance. Field exams yield high no-change rates, which wastes IRS resources. A study included in the Advocate’s report says that taxpayers who experienced audits reported higher levels of fear, anger, threat and caution when thinking about the IRS and felt less protected by the IRS. Taxpayers who went through correspondence exams reported a lower level of perceived justice compared to those who go through in-person audits.
The Data Book includes results from a phone survey on tax cheating. Most taxpayers (85%) continued to agree, over the last decade, that it is “not at all” acceptable to cheat on their income taxes.
Still, the Government Accountability Office says the tax gap—the difference between tax amounts that taxpayers should have paid and what they actually paid voluntarily and on time—as 82% of owed taxes, leaving an annual gap of $458 billion.
For a look at the “real” audit rate, including math error notices and document-matching notices, see IRS Official Audit Rate Is Down But The ‘Real’ Audit Rate Is The Problem.