March 14, 2022
IRS Audits Poorest Families at Five Times the Rate for Everyone Else
A large increase in federal income tax audits targeting the poorest wage earners allowed the Internal Revenue Service to keep overall audit numbers from further declines for Americans as a whole during FY 2021. That resulted in these low-income wage earners with less than $25,000 in total gross receipts being audited at a rate five times higher than for everyone else.
Even taxpayers with total positive income from $200,000 to $1,000,000 had much lower odds of audit compared with these lowest income wage earners — workers with incomes so low they had claimed an anti-poverty earned tax credit.
Last year out of over 160 million individual income tax returns that were filed, the IRS audited 659,003 – or just 4 out of every 1,000 returns filed (0.4%). This was only slightly lower than the overall odds of audit from FY 2019, and above FY 2020 levels where just 3 out of every 1,000 returns filed were examined. Audit rates in general have been dropping for many years.
IRS accomplished over 650 million audits last year by jacking up its already high reliance on so called “correspondence audits” – essentially a letter from the IRS asking for documentation on a specific line item on a return. All but 100,000 of the 659,000 audits were conducted with these letters through the mail. Correspondence audits during FY 2021 rose to 85% of all IRS tax audits — up from roughly 80 percent during the previous two years.
IRS targeted over half of these correspondence audits at the small proportion of workers at the lowest end of the income scale. This unfortunate situation is not new. History is just repeating itself. More than twenty years ago, TRAC similarly reported that “low income taxpayers now stand a greater chance of being audited than higher income taxpayers.”
Budget cuts have forced a reduction in many different IRS efforts. Since the end of FY 2010, the number of IRS revenue agents has dropped by 41 percent. The unavailability of experienced revenue agents means that complex tax returns often go unexamined. Yet these are the targets where experts believe the largest amount of tax revenue is escaping detection and collection. The end result is that IRS targets low-income taxpayers because they are simply easier to audit while those with high incomes escape any examination.
These results are based on internal IRS reports released each month to the Transactional Records Access Clearinghouse (TRAC) at Syracuse University under a court order entered after successful litigation under the Freedom of Information Act.
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