Audit Rates and What They Could Mean For Your Business

Audit RatesAccounting Today recently published an article, “Ten Major Trends in IRS Audits,” examining how IRS audit rates have changed over the past several years. This article provides useful information for taxpayers, especially those who own a business.

Audits of Business Entities

Partnerships and S Corporation are less likely to be audited. According to the article, “The IRS continues to struggle to audit S corp and partnership returns. This situation is likely to get worse as the more experienced IRS business auditors continue to retire. Audit rates for S corps and partnerships are both 0.22 percent – or, put another way, one in every 455 passthrough entities were examined in 2018. It is no wonder that the number of S corporations have increased by 38 percent from 2005 to 2018 (3.5 million in 2005 versus 4.85 million in 2018).” This is an important factor to consider when thinking about making an “S election” for your business.

In addition, audit rates have dropped overall in the last decade. “Most taxpayers envision Internal Revenue Service audits as intrusive investigations resulting in criminal sentences. Today, nothing could be farther than the truth. The IRS’s auditing power has been greatly diminished in the past decade. Congress reduced IRS audit resources by 28 percent in the last decade. And audits are down  from 0.9 percent in 2010 to o.5 percent in 2018. In fact, the number of IRS audits in 2018 (991,168) dropped by almost half compared to 2010 (1.735 million).”

Audit Targets

Nevertheless, there are situations where the IRS consistently audits companies or individuals. According to the article, audits are especially popular among the wealthy. “In 2011, one out of every eight taxpayers who earned more than $1 million in income were audited. In 2018, the number dropped to one in every 31 taxpayers. However, those who earn more than $1 million are still among the most popular audit profiles.”

Article References
Accounting Today, “Ten major trends in IRS audits.” By Jim Buttonow. Click here to read the original article.

Founded by Gary Massey, Massey and Company CPA serves the needs of small businesses and business owners from their office in Atlanta, GA.  They handle tax matters, IRS controversy, tax debts, back taxes, bookkeeping and accounting.  Offices are in the Buckhead neighborhood of Atlanta.   The firm welcomes face-to-face visits.

Gary Massey, CPA

Massey and Company CPA

P.O. Box 421396, Atlanta, GA  30342

Massey and Company