As they scramble to file their taxes just one day before the federal deadline, there’s one tax break of sorts many Americans may be able to count on this year. Proving that not even the Internal Revenue Service is immune to a poor economy, the IRS may be conducting fewer audits this year due to budgetary constraints and other cutbacks, according to reports.
Fatigued Feds: The IRS is Feeling the Sting
Ratepayers aren’t the only ones feeling taxed this year — slashed funding and a workforce reduction of 5,000 have put tax audits on the back burner for the time being. This year alone, USA Today reported, the IRS has dealt with a hiring freeze, newer, more complex tax codes and an increase in tax refund identity fraud claims, in addition to budget cuts and weakened manpower. An understaffed and underfunded IRS has affected the rate of IRS audits, which plummeted to a low 1.1 percent in both 2010 and 2011.
IRS officials, noted USA Today, place most of the blame on the surge in ID fraud investigations that necessitated a reassignment of investigators. They said that if tax audits dropped below 1 percent, it would be the lowest they’d have seen since 2006.
The report said that the 5,000-worker drop equates a 3.1 percent reduction in IRS employees, from 94,346 in 2010 to 91,380 last year. That also counts towards a 60 percent reduction in enforcement officials checking on everything from tax evasion to other federal offenses. There simply aren’t enough employees to cover IRS audits as well as tax fraud cases, which saw its biggest caseload in the same time period, a 431 percent jump from 2010 till last year.
Avoiding IRS Audits
The Atlanta Journal-Constitution, citing the expertise of certified public accountants and tax advisers, lists several tax “red flags” that may lead to IRS audits:
- Unreported income. If income reports from employers and banks don’t add up to what a taxpayer reports, you could be singled out for auditing.
- Too-low salary. It’s legal to receive compensation other than a monetary salary — but go too much under an acceptable limit and you may be subject to an audit.
- Being highly paid. Don’t hate them because they’re rich. They also get audited more. According to Kiplingers, the average national audit rate of 1.1 percent goes up to 3.9 percent for people earning more than $200,000 annually — one in eight earning $1 million or more were audited last year, the magazine said.
- Self-employment. “Schedule C” listers on the standard tax form — also known as independent contractors who don’t pay taxes up front — are more prone to IRS evaluations.
- Charitable giving. Donations to non-profits and charities are appreciated, but if the money you’re giving exceeds what you’re receiving, an audit may be in store.
Whether its a tax return typo or just downright financial fraud, tax audits will be around as long as there’s an IRS in the USA. Though many people will get a reprieve this year on the dreaded tax audit, it doesn’t mean they won’t be in full force in 2013.
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