Will You Be Audited This Year? 3 Audit Trends from T&C’s Perspective
April 4, 2014
With only days left to file before the April 15th deadline, a lot of taxpayers are wondering whether they’ll be audited. The 2013 Data Book issued by the IRS is just the place to find the odds, which not surprisingly, go up as your income or business’s balance sheets do. This year’s report shows 1.0% of all individual returns were audited, but for those with income between $200k and $1 million that number grew to 1.4% and then jumped to 10.8% for income of $1 million or more. Approximately 1.4% of corporate returns were audited overall, but the rate ticked upward fast according to balance sheets, hitting up to 91.2% for corporations with $20 billion or more.
The IRS acknowledged in the report that ongoing budget constraints contributed to a 5% decline in audits between FY 2013 and 2012. Approximately 1.4 million individuals were audited, the lowest number since FY 2008. That’s good news for filers, right? Not necessarily. Here are three trends we’re seeing based on our experience representing hundreds of taxpayers and businesses:
Auditors’ Ability to Understand Complicated Tax Issues is Compromised – Taxpayers aren’t the only ones challenged with navigating the 4,838 changes in tax code since 2001; its enforcers are, too. Do more with less, a mantra entrepreneurs of growing companies understand well, is one IRS auditors are also coming to terms with as a result of budget constraints.
Quality of Documentation Matters More Than Ever – Whether this is the IRS’ attempt to improve audit efficiency or reduce errors, we can’t know for sure. But the impression we’re getting is that auditors are adhering closely to a checklist of requirements, whether that list includes items actually required by regulations or not.
Auditors Don’t Always Understand How a Business Operates – We’ve seen auditors object to businesses with more than one landline and even deny deductions for businesses that reimburse salespeople for taking clients to lunch. What seems universal to us still needs to be defended to the IRS.
If you do get a notice of an examination, you don’t have to go it alone. Talley and Company’s tax and legal professionals can guide you through the process. We can submit requested documentation per an auditor’s preferred format, advocate for legitimate deductions taken by businesses in your specific industry, and go toe to toe with auditors through every inch of the tax code. Just remember that if the IRS comes calling you, you can call us.