Why you probably won’t be audited by the IRS

Nancy Marshall-Genzer Nov 5, 2015
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Why you probably won’t be audited by the IRS

Nancy Marshall-Genzer Nov 5, 2015
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The IRS says years of budget cuts have pushed taxpayers’ likelihood of being audited lower than it’s been in more than a decade.

Experts say that if you’re really rich or really poor, you’re more likely to hear from the IRS.

“If you report literally no income, then you have about  a 5 percent chance of being audited, whereas if you report more than $10 million of income, you have about a 16 percent chance of being audited,” said John Friedman, an associate professor of economics and public policy at Brown University.

Friedman said the rich are audited more because they have more money. The poor? The IRS is worried they’re bending the rules on the Earned Income Tax Credit, a subsidy based on hours worked and dependents. Beyond that, the IRS has a secret formula it uses to ferret out tax cheats.  But all that legwork takes auditors.

“For every dollar you spend on examinations you recover about $4, $5 worth of revenue,” said Eric Toder, a former IRS research analyst, now at the Urban Institute.

The IRS said budget cuts have trimmed the ranks of its auditors by 22 percent over the past five years. The upshot? Less money rolling in from audits, and maybe less tax compliance. More cheating.

“There’s a tendency for people to comply and honor their obligations more if they think, kind of everyone else is.” said Daniel Shaviro, a professor of taxation at NYU law school.

Oh, and taxpayers who actually want to pay up, but have a question?  They can’t get through to the IRS. Because of cuts to what the IRS calls customer service. 

 

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