Tax season is upon us, and along with it comes the ensuing bout of paranoia about the dreaded IRS audit.
But, statistically speaking, getting audited is unlikely for most American taxpayers. In 2022, the IRS audited 3.8 out of every 1,000 income tax returns.
Audit rates have been on the decline since 2010. Across all income brackets, the audit rate decreased to 0.25% in 2019, down from 0.9% in 2010.
The wealthiest taxpayers experienced the biggest percent change over that period. In 2019, a little more than 2% of Americans earning more than $5 million per year had their taxes audited. That’s down from 16% in 2010, according to a report from the Government Accountability Office.
“For taxpayers earning over $1 million, there has been substantial reduction in audit rates, but they are still audited more frequently than taxpayers earning below $200,000,” said Alex Muresianu, a policy analyst at the Tax Foundation.
The GAO report concludes that a drop in IRS funding was a main contributor to the decline in audits. Funding for the agency decreased by more than 20% between 2010 through 2019 when adjusted for inflation.
“The IRS, like most parts of government, relies on the annual appropriations process,” said Mark Everson, a former IRS commissioner and current vice chairman at Alliantgroup. “The problem is that the Congress doesn’t do a good job of funding the government.”
The biggest cut in that has been in enforcement — and particularly in their most highly skilled agents who do the audits.
Janet Holtzblatt
senior fellow at the Urban-Brookings Tax Policy Center
About 70% of the IRS’s overall budget is spent on labor. As a result of the spending cuts, the IRS staff was reduced by 22%.
“The biggest cut in that has been in enforcement — and particularly in their most highly skilled agents who do the audits and who also do collections,” said Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center. “And those are the very kind of agents that do the most sophisticated, most difficult returns.”
“This is highly technical work and you need experience,” Everson said. “Someone who’s three years out of college isn’t going to be doing the technical work on the ExxonMobil tax return.
“It takes a while to get that level of knowledge and sophistication,” he added.
A turnaround began amid the pandemic
The pandemic marked a turning point of sorts for the IRS. In 2020 and 2021, the IRS received supplemental funding from Congress due to the pandemic, which led to a slight bump in full-time employment.
In August 2022, President Joe Biden signed the Inflation Reduction Act into law, which set aside nearly $80 billion for the IRS to be used over the next 10 years.
“It’s an unusually large amount for the IRS,” Everson said. But “if you compare it to the Navy or the Department of Health and Human Services, no, it’s not a large amount of money — so it’s all relative.”
Nearly $46 billion will be used for tax enforcement, more than $25 billion for operation support, more than $3 billion for taxpayer services, nearly $5 billion for technology modernization and a half billion dollars on provisions such as renewable energy tax credits.
Since getting the additional funding, the IRS plans to hire 10,000 workers, a move that may ramp up audit activities. The Congressional Budget Office estimates that the additional funding will increase government revenues by approximately $200 billion over the 10-year period.
Watch the video above to learn more about how the IRS works and how a decade of budget cuts has affected audit rates.
