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How the tax audit rate impacts Americans

| Apr 13, 2018 | Audits

The IRS audits less than 1 percent of returns submitted by individuals and partnerships. Therefore, it could stand to reason that taxpayers in Georgia and throughout the country have more incentive to cheat on their taxes. However, the truth is that recent changes to the tax code make it harder to do so. It could also be more difficult than people think to avoid reporting income to the IRS because most employers and other parties report an individual’s earnings to the government.

The IRS has found that only 1 percent of income is not reported when there is reporting or withholding mechanisms in place. Generally, only the highest-earning individuals or businesses that are paid in cash can effectively avoid third-party earnings reports to the government. Those who don’t itemize may not be able to take tax deductions related to mortgage interest or other expenses. Therefore, they may not have a chance to cheat on their taxes even if the IRS doesn’t come after them.

One group that may be incentivized to take liberties on their tax returns is those who create pass-through business entities. This is because the new law may make it necessary to audit both the partnership and the individual returns submitted by the owners. Doing so could stretch the IRS thinner than it already is.

If a person receives a tax audit, it may be a good idea to respond to it quickly. This can be done either by the subject of the audit or through an attorney or enrolled agent. Acknowledging the audit and communicating in good faith with the government may increase the odds of a favorable outcome in a case. In some cases, an examination might reveal that a taxpayer is actually owed a refund.

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