It appears that budget cuts have affected the IRS as well as every other government service. 2013’s audit rate of .96% was the lowest in about 9 years. This even includes correspondence exams (mail audits which are limited in scope). In fact, almost 76% of the audits were correspondence exams. Of that measly .96%, the actual number that involved IRS agents in the exam was closer to .24%, about 1 out of 417 returns.
Rates are expected to fall even further in 2014. Budget cuts have caused the IRS to stop taking any calls from taxpayers now that tax season is over. Tax law question are being directed to IRS publication or to the IRS website. Commissioner Koskinen expects the individual exam rate to be about .80% in 2014, resulting in 100,000 fewer audits. Rates are expected to drop for examination of businesses as well.
So the IRS is focusing its efforts on high-income taxpayers. Taxpayers with incomes under $200,00 have a 1 in 519 chance of audit, while those between $200,00 and 1 mil see their chances rise to 1.11%. Taxpayers lucky enough to have income over 1 mil will find their risk of a visit from an auditor rise to 5%.
Audit rates are expected to be low through 2016 which is when newly trained agents could be expected to be effective. That’s assuming IRS gets the budget increases requested to hire additional workers, not necessarily a given.