What Are the Chances You'll Be Audited by the IRS?

Should you really fear the feds?

May 30, 2014 at 5:09PM

The fear of an audit is a driving force deeply ingrained in the psyche of the American taxpayer. In fact, according to the Internal Revenue Service, it's the third-biggest reason why people pay their taxes and do so honestly, behind personal integrity and the fact that third parties already report certain income information to the feds.  But is our fear ultimately warranted?

You're far more likely to get audited than you are to win the lottery, get struck by lightning, or be attacked by a shark -- that's for sure. But still, only 1% of individual taxpayers were audited in 2013, according to IRS data -- which means the hype probably exceeds the actual risk when all is said and done. That would seem to be especially true this year, as recent budget cuts, and the October 2013 government shutdown, have seriously cramped Uncle Sam's enforcement style.

Nevertheless, it's unwise to take scarce IRS resources as an excuse to misreport and hope you won't be caught. It's simply not right, and definitely not a risk worth taking. Just think about what happened to Al Capone, Willy Nelson, Wesley Snipes, Lauryn Hill, and all of the other famous tax-evaders. Sure, their celebrity likely resulted in increased IRS scrutiny, but as you'll see below, the IRS will ultimately catch up with you regardless of your social status.

WalletHub analyzed historical IRS data in order to determine how audit rates compare across tax brackets, as well as between individuals, small businesses, and large corporations.  We also looked at historical audit results, as well as incarceration statistics, and even how the IRS enforcement division has changed throughout the years. You can find a complete breakdown of our findings below.

Key findings

  • For both consumers and corporations, the smaller the income, the higher the rate of tax evasion.
    •  Audited consumers who make less than $200,000 pay 83% higher penalties (as a percentage of adjusted gross income) than people making more than $200,000.
    • Audited corporations that earn $250,000 to $1 million pay more than 11 times higher penalties (as a percentage of adjusted gross income) than corporations earning $10 million to $50 million.
  • Individual taxpayers have a 1% chance of being audited. The individual audit rate has fallen more than 9% since 2010.
  • Small businesses have a 1% chance of being audited. The small-business audit rate has increased more than 17% since 2009.
  • Large corporations have a 15.80% chance of being audited. The large-corporation audit rate has increased 8.6% since 2009.
  • Individuals making $10 million or more are 3,933% more likely to be audited than those who make $25,000 to $100,000.
  • Corporations with more than $20 billion in annual revenue are 11,300% more likely to be audited than companies with less than $250,000 in revenue.
  • 11% of individual audits result in no additional tax obligation, compared to 28% of small business audits and 27% of large corporation audits.
  • The number of IRS agents dedicated to examinations, collections, and investigations has declined more than 12% since 2010.
  • The annual number of incarcerations for tax crimes has increased more than 117% since 2003.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes, and potentially even lower your tax bill. In our brand-new special report, "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers