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What are the chances that an IRS audit is in your future?

It's been one week since U.S. taxpayers were required to file and pay their taxes. For some taxpayers, the filing deadline passed without incident and they likely won't even think about their taxes until next March or April. Others, however, may be unable to shake the concerns and fears they have related to possible oversights and tax errors. For these taxpayers, the dreaded five-letter word audit is bound to linger in the back of their minds.

While every taxpayer is inherently terrified of being audited, few know much about the process or the fact that the chances of being personally targeted for an audit are incredibly small and only appear to be shrinking. Based on the most-recent audit statistics, the Internal Revenue Service's audit rate is 0.84 percent. This means that there is a "less than one in 100" chance that an individual will be audited and, based on the IRS' own statements, the audit probability scales are expected to continue to tip in taxpayers' favor.

At a speech in March, IRS Commissioner John Koskinen discussed the severe financial problems facing the agency, revealing that the IRS' fiscal budget is roughly $900 million less than it was is 2010. What's more, in an effort to make up for the budget cuts, the agency has intentionally allowed vacant positions to remain unfilled and this year alone, the agency is expected to "shrink by another 2,000 to 3,000 full-time employees."

Koskinen went on to openly admit that the agency’s tactics to remain afloat have led to "a steady decline in the number of individual audits over the past six years." While this is likely welcome news to all U.S. taxpayers, the IRS estimates that they agency is failing to recover upwards of $5 billion in revenue annually.

It's clear that the IRS' budgetary problems are impacting the agency's enforcement efforts, including audit actions, but taxpayers are still expected to comply with tax laws. While the risk of being targeted for an audit appears to be relatively low and is expected to continue to decrease, the IRS still has various tools at its disposal for identifying and punishing non-compliant taxpayers.

Source: Forbes, "IRS Admits Audit Chance Is Small -- And Dropping Like A Rock," Robert W. Wood, March 28, 2106

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