So what are the odds, overall, of the IRS targeting your return for a tax audit? The answer varies, of course, depending on certain factors. It's important to minimize your risks of an audit by taking common sense steps to protect yourself. As we discussed in our January 29 post, these can doing these like keeping records of charitable contributions and including all types of income.
For taxpayers in Texas and across the country, the possibility of an IRS audit serves as a check on what is still largely a tax system based on voluntary compliance. Overall, the agency audits only about one percent of individual tax returns each year.
That seemingly small number, however, should not lull taxpayers into a sense of complacency. The one percent figure is only an average. As we've already mentioned, certain kinds of returns, such as those with very large charitable deductions, may be more likely to be audited.
In addition, the IRS has other sources of information about taxpayers that it can use to gauge the accuracy of many returns. These sources include employers and financial institutions that provide information to the IRS.
In essence, these third-party sources function as checks and balances that help keep most taxpayers honest. The IRS is not solely dependent on self-reporting by taxpayers of their own financial information.
Still, a recent poll showed that a basic desire to be truthful remains the major motivation for honestly reporting information to the IRS. According to a telephone survey by the Internal Revenue Service Oversight Board, 95 percent of taxpayers said personal integrity was an influential factor in doing their taxes. This was higher than the fear of an audit, which was an influential factor for 63 percent.
Source: "Poll: 87 percent say never OK to cheat on taxes," WBTV / Associated Press, Stephen Ohlemacher, 2-26-13
Our firm handles situations similar to those discussed in this post in the Forth Worth area and elsewhere in Texas. To learn more about our practice, please visit our page on IRS audits and appeals.