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Syracuse University Report Finds Disparities in IRS Audits

S.J. Steinhardt
Published Date:
Jan 5, 2023

The chances of a millionaire being audited by the IRS last year stood at about one in 100, while lower-income wage earners were targeted at an unusually high rate, the Transactional Records Access Clearinghouse (TRAC) at Syracuse University found.

Audit rates of low-income wage-earners taking the earned income tax credit in fiscal year 2022 were five and a half times higher than those of everyone else, the report found; 12.7 percent of these taxpayers were audited, representing 1.27  percent of all returns. In contrast, the audit rate for everyone else in fiscal year 2022 was 2.3 percent . “[T]his group of taxpayers have historically been targeted not because they account for the most tax under-reporting, but because they are easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions,” the report states.

Last year, 164,545,167 individual income tax returns were filed. “The IRS audited 626,204 returns, down from 659,003 during FY 2021. Less than 100,000 of these (93,595) were regular audits in contrast to correspondence audits (532,609),” the report states. “Together this means that last year the odds of audit had fallen to 3.8 out of every 1,000 returns filed (0.38%). For FY 2021, the odds of audit had been 4.1 out of every 1,000 returns filed (0.41%).”

The report noted that funding issues have resulted in the IRS having only "around 1,400 staff-years of revenue agent time" to apply to those filed returns.

Due to these constraints, the IRS has increasingly relied on correspondence audits instead of face-to-face audits to request documentation on a specific item. “In FY 2022, 85 per cent of what IRS counts as audits of 1040 returns were these letters,” the report noted. “Even for millionaires the IRS has turned to these. Indeed, last year about half (48%) of millionaire audits consisted of these simple letter inquiries.”

When applied to millionaires, correspondence audits caused the odds of millionaires receiving some attention by the IRS to rise from 1.1 percent to 2.8 percent. This still left about 700,000 millionaires “with absolutely no scrutiny whatsoever,” the report read.

The report acknowledged that millionaires "did have the highest odds of being audited." But it explained that "if one ignores the fiction of auditing a millionaire through simply sending a letter through the mail, the odds that millionaires received a regular audit by a revenue agent (1.1 percent) was actually less than the audit rate of the targeted lowest income wage-earners whose audit rate was 1.27 percent!"




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