Tax Prep & Filing


What the Odds Are That Your Tax Return Will Be Audited, and What to Do If It Is

Is It Deductible?

Overall, the odds are reassuring. The vast majority (99%, in fact) of individual income tax returns skate safely past the IRS audit machine.

Better news: The 1-in-100 chance of being called on the carpet really overstates the severity of the situation. Fully 70% of all audits are handled by mail, not by mano a mano combat with an IRS agent. And, if your return doesn't include income from a business, rental real estate or a farm, or employee business expense write-offs, the basic 1-in-100 chance of being challenged jumps to 1-in-250.

TOOL: Pinpoint Your Audit Odds

Another piece of rarely reported good news: Each year, tens of thousands of taxpayers walk out of an audit with a check from the government. In 2011, for example, 66,381 audits resulted in refunds totaling over $1 billion.

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The 1-in-91 chance of being audited is the overall average. Your actual odds turn on the kind of return you file and the type of income you report.

Our calculator, based on official IRS data on returns audited in 2012, will give you a good idea of the odds that your personal 1040 (or 1040-A or 1040-EZ) will be selected for review — either by mail or in person. And, remember, even if it is, there's a 1-in-7 chance you'll walk away unscathed or be one of the lucky ones whose audit results in a refund.

With few exceptions, of course, the IRS doesn't randomly choose which returns to audit. The few thousand random reviews each year are performed to help the IRS calibrate the computers that identify the juiciest targets.

Over the next few months, the IRS will be plugging data from more than 140 million tax returns into a computer that scrutinizes the numbers every which way and ponders how the picture you paint of your financial life jibes with what it knows about other taxpayers. The computer tries to spot returns that are most likely to produce extra tax if put through the audit wringer. The computer's choices are reviewed by a human being who can overrule them if, for example, an attachment to your return satisfactorily explains the entry that set the computer all atwitter. Short of such a veto, your name will go on the list.

See Also: IRS Audit Red Flags -- The Dirty Dozen

Even if your return survives the computer's scrutiny, you're not necessarily safe. You may have listed an investment in a tax shelter the IRS is particularly interested in, for example, or the agency might decide to take a closer look at your return because it smells of the latest scam du jour identified by the IRS.

And there's always the chance that someone has fingered you as a tax cheat. The IRS encourages such tips and even pays a bounty for leads that pay off in extra tax.

Don't Panic

Whatever the reason you're chosen for an audit, it's chilling to get the word that the IRS wants to examine your return. After all, everyone knows that the IRS was able to do what J. Edgar Hoover and all the G-men of the FBI couldn't do: put Al Capone behind bars. Even if you have no reason to think you did anything wrong, you can't escape the anxiety that accompanies an audit notice. For one thing, the return being audited is unlikely to be the one you just filed. A lot of taxpayers are only now hearing from the IRS about their 2011 returns ... and some 2010 returns are just coming up to bat. (Generally, the IRS has three years from the due date of your return — until April 15, 2016, for 2012 returns — to initiate an audit.)

How It All Begins

You'll get a letter announcing your fate. The simplest audit — a correspondence audit — requires only that you mail in the records needed to verify a specified claim on your return. In a field audit, an IRS agent comes to your home or place of business to go over your records. Most common, though, are office audits, which involve getting yourself to a local IRS office. You'll probably have at least a couple of weeks to prepare. If the appointment is set for an inconvenient time or you find that you'll need extra time to pull your records together, call the IRS promptly to request that the audit be rescheduled.

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