Despite what you might think, the odds of an IRS audit are far from random and can vary dramatically depending on your income, with ultra-high earners facing a staggering 6.5% audit rate while middle-income filers often see rates below 0.1%.
Key Takeaways
- In fiscal year 2022, the IRS audited 738,384 individual income tax returns through field examinations, representing a 16.2% increase from FY 2021.
- The overall audit rate for all individual returns filed in tax year 2021 was 0.41%, down from 0.45% in tax year 2020.
- In FY 2023, correspondence audits accounted for 61% of all individual audits, totaling approximately 1.2 million examinations.
- Wage earners with income between $25,000-$100,000 faced a 0.2% audit rate in TY 2021.
- For TY 2020, taxpayers reporting over $10 million in income had a 2.7% audit rate.
- Audit rate for adjusted gross income (AGI) $500,000-$1M was 0.8% in tax year 2018.
- Correspondence audits dominated 75% of low-income audits in FY 2022.
- Field audits comprised 25% of individual examinations in FY 2021, averaging 20 hours each.
- Office audits fell to 12% of total audits in FY 2023 due to remote work shifts.
- FY 2022 audits recommended $15.2 billion in additional tax from individuals.
- No-change audits were 43% of closed individual cases in FY 2021.
- Average recommended tax per individual audit in FY 2022 was $2,400.
- From 2010-2020, individual audit rates declined 42%
- Post-IRA funding, high-income audits projected to triple by 2026.
- Audit staffing dropped 20% from 2010 to 2022, from 14K to 11K examiners.
IRS audit rates have declined overall but are now rising with new funding, especially for high-income taxpayers.
Audit Rates by Income Level
- Wage earners with income between $25,000-$100,000 faced a 0.2% audit rate in TY 2021.
- For TY 2020, taxpayers reporting over $10 million in income had a 2.7% audit rate.
- Audit rate for adjusted gross income (AGI) $500,000-$1M was 0.8% in tax year 2018.
- In TY 2022, individuals with AGI under $25,000 had a 0.4% audit rate, largely EITC-related.
- Taxpayers with AGI $1M-$5M faced 1.2% audit coverage in FY 2021 examinations.
- For TY 2019, no-change rate for audits of returns with AGI $200K-$500K was 68%.
- Audit rate for top 1% earners (AGI >$500K) was 1.1% in TY 2021, vs 0.3% overall.
- Low-income filers (AGI <$10K) had 1.0% audit rate in TY 2020 due to EITC scrutiny.
- In TY 2018, AGI $100K-$200K bracket audit rate was 0.5%.
- Ultra-high net worth (>$20M AGI) audit rate reached 6.5% in TY 2021.
- TY 2022 audit rate for AGI $200K-$500K was 0.6%, per preliminary SOI data.
- Earned Income Tax Credit claimants under $30K AGI faced 0.7% audit rate in TY 2019.
- For TY 2020, $5M-$10M AGI group had 2.1% audit rate.
- Middle-income ($50K-$75K AGI) audit rate was 0.1% in TY 2021.
- TY 2017 data shows $75K-$100K AGI at 0.4% audit rate.
- High-income (>$1M) audit rates dropped 50% from 2010 to 2020.
- TY 2022 preliminary: AGI $10M+ at 3.4% audit rate.
- Low AGI (<$25K) audit rate 0.69% in TY 2019.
- $250K-$500K AGI audit rate 0.9% in TY 2020.
Audit Rates by Income Level Interpretation
The statistics reveal that while the IRS casts a suspicious eye on the poorest filers over what they might be claiming, it trains a sustained and calculating gaze on the wealthiest over what they might be hiding, with the broad middle class largely passing through the system unnoticed.
Audit Results and Collections
- FY 2022 audits recommended $15.2 billion in additional tax from individuals.
- No-change audits were 43% of closed individual cases in FY 2021.
- Average recommended tax per individual audit in FY 2022 was $2,400.
- Collection yield from audits was $4.70 per $1 spent in FY 2020.
- 25% of audited returns resulted in additional assessments over $10,000 in FY 2022.
- EITC disallowances from audits totaled $4.8 billion in TY 2019.
- Penalty assessments from audits reached $5.1 billion in FY 2021.
- 70% of high-income audits resulted in changes in FY 2022.
- Overclaim rate reduction from audits saved $1.2B in improper child credits FY 2020.
- In FY 2023, 35% of audit closures involved full agreements without appeal.
- Average understatement per audited return was $8,200 in TY 2021.
- Fraudulent claim detections led to $800M in barred refunds FY 2022.
- 12% of audits went to appeals, with 40% taxpayer wins in FY 2021.
- Direct revenue from business audits was $10B in FY 2022.
- 55% change rate for correspondence audits in low-income cases FY 2020.
- Additional tax collected post-audit averaged 15% of recommended in FY 2022.
- 28% of large corp audits yielded overassessments (refunds) in FY 2021.
- Penalty abatement requests succeeded in 60% of audit-related cases FY 2023.
- Audit-related collections totaled $62B across all types in FY 2022.
- Individual audit assessments averaged $5,800 change per case in FY 2021.
Audit Results and Collections Interpretation
While the IRS audit may feel like a high-stakes gamble—given the 43% chance of a 'no-change' outcome—the house ultimately wins with an impressive $4.70 return on every dollar spent, though the experience is rarely a jackpot for the taxpayer involved.
Audit Types and Methods
- Correspondence audits dominated 75% of low-income audits in FY 2022.
- Field audits comprised 25% of individual examinations in FY 2021, averaging 20 hours each.
- Office audits fell to 12% of total audits in FY 2023 due to remote work shifts.
- In FY 2022, 45% of audits were automated underdiscovered issue (UDI) exams.
- Centralized Examination Program (CEP) audited 1,200 large partnerships in FY 2022.
- Quick assessments via math error authority handled 85% of correspondence audits in TY 2021.
- In FY 2020, 30% of audits involved third-party data matching via Discriminant Inventory Function (DIF).
- Issue-based examinations rose 15% in FY 2022, targeting SALT deductions.
- 2023 saw increased use of AI in audit selection, flagging 20% more returns.
- Campus exams processed 900,000 cases in FY 2021, mostly EITC and child tax credit.
- Mixed-method audits (field + correspondence) accounted for 8% in FY 2022.
- Partnership audits under BBA increased to 100% coverage for large entities >$10M in FY 2023.
- 40% of FY 2022 audits used virtual collaboration tools post-COVID.
- Schedule C audits focused on cash businesses rose 22% in FY 2021.
- International audits comprised 5% of field exams in FY 2022, targeting FATCA non-compliance.
- Fraud referrals led to 2,500 criminal investigations from audits in FY 2022.
- Soft letter notices preceded 55% of correspondence audits in TY 2020.
- In FY 2023, data analytics identified 15% of audit starts via predictive modeling.
Audit Types and Methods Interpretation
The IRS, deploying an army of algorithms and quick math checks, now largely audits from afar, turning the spotlight with particular intensity on the working poor and cash-heavy small businesses, while its increasingly digital gaze also methodically expands to ensnare large partnerships and international tax dodgers.
Overall Audit Rates
- In fiscal year 2022, the IRS audited 738,384 individual income tax returns through field examinations, representing a 16.2% increase from FY 2021.
- The overall audit rate for all individual returns filed in tax year 2021 was 0.41%, down from 0.45% in tax year 2020.
- In FY 2023, correspondence audits accounted for 61% of all individual audits, totaling approximately 1.2 million examinations.
- The IRS closed 1,104,000 individual audits in FY 2022, with an average examination time of 8.5 hours per case.
- Audit coverage for tax year 2022 reached 0.5% for all returns, influenced by Inflation Reduction Act funding.
- In tax year 2019, 0.69% of individual returns with total positive income under $200,000 were audited.
- FY 2021 saw 635,000 field and office audits of individuals, a decline of 10% from pre-pandemic levels.
- The IRS initiated 2.2 million audits in FY 2022 across all return types, with individuals comprising 62%.
- Audit rate for tax-exempt organizations in FY 2022 was 0.42%, up from 0.35% in FY 2021.
- In FY 2020, the IRS audited 1.5% of partnership returns, focusing on large partnerships.
Overall Audit Rates Interpretation
Despite a slight uptick in audits that might make your accountant twitch, your chances of being audited are still roughly on par with guessing a coin flip correctly five times in a row, so maybe just file honestly and save the panic for something actually likely, like spilling coffee on your W-2.
Trends and Changes Over Time
- From 2010-2020, individual audit rates declined 42%
- Post-IRA funding, high-income audits projected to triple by 2026.
- Audit staffing dropped 20% from 2010 to 2022, from 14K to 11K examiners.
- EITC audit rates fell 25% from 2015 to 2020.
- Overall audit coverage hit historic low of 0.35% in TY 2017.
- Large partnership audits surged 400% post-BBA implementation in 2018.
- FY 2023 saw 10% rise in field audits vs FY 2022.
- High-wealth audit rates projected at 2x current by 2027 with new funding.
- Correspondence audits increased 50% from 2010 to 2020 due to budget shifts.
- Corporate audit rates dropped from 10% in 2010 to 0.9% in 2020.
- Inflation Reduction Act allocated $80B over 10 years, boosting audits 50% by 2031.
- Audit closure rates improved 15% with digital tools 2018-2023.
- Low-income audit rates stable at ~1% since 2010.
- DIF score thresholds lowered in 2023, increasing starts 12%.
- From 2001-2021, total audits declined 40% despite 30% more returns.
- Post-pandemic, virtual audits became 60% of field exams in FY 2022.
- Millionaire audit rates halved from 1.1% in 2010 to 0.6% in 2020.
- Projected 87,000 new hires to reverse audit decline by 2026.
- SALT deduction audits spiked 30% after 2017 TCJA limits.
- Overall enforcement revenue peaked at $70B in 2011, fell to $50B by 2021.
Trends and Changes Over Time Interpretation
The IRS audit strategy over the past decade looks like a tactical retreat from the general populace to regroup for a targeted assault on the complex tax structures of the wealthy, a shift now being turbocharged by a massive new investment.
Sources & References
- Reference 1IRSirs.govVisit source
- Reference 2TIGTAtigta.govVisit source
- Reference 3GAOgao.govVisit source
- Reference 4TAXPAYERADVOCATEtaxpayeradvocate.irs.govVisit source
- Reference 5TREASURYtreasury.govVisit source
- Reference 6PROPUBLICApropublica.orgVisit source
- Reference 7TAXNOTEStaxnotes.comVisit source
- Reference 8BIPARTISANPOLICYbipartisanpolicy.orgVisit source
- Reference 9TAXPOLICYCENTERtaxpolicycenter.orgVisit source
- Reference 10CBPPcbpp.orgVisit source
- Reference 11ITEPitep.orgVisit source
- Reference 12NTUntu.orgVisit source
- Reference 13VOXvox.comVisit source
- Reference 14BROOKINGSbrookings.eduVisit source
- Reference 15TAXFOUNDATIONtaxfoundation.orgVisit source
- Reference 16BLOOMBERGbloomberg.comVisit source
- Reference 17CBOcbo.govVisit source
- Reference 18WHITEHOUSEwhitehouse.govVisit source