As a tax CPA with a special interest in the auto repair industry, the number one question I get asked is, “What are my odds of being audited by the IRS?” I thought this was an excellent topic to address, especially since news outlets have been releasing tons of articles about the IRS’ new funding, which, in part, is earmarked for hiring 87,000 new IRS agents. So, what are the facts?
I can tell you that from my personal experience, I believe that the odds of being audited are very low. In my 25-year career as a tax CPA (12 years owning my own firm), only one of the tax returns I filed has been singled out to be audited. The good news is that it had a very special nuanced tax situation, and the even better news is that the position I took on the tax return was upheld by the IRS auditor, so the taxpayer received a “no change” letter, and the matter was closed.
This is the norm among all the Tax Facebook groups that I participate in regularly. But for this article, I researched Google and, of course, ChatGPT. I found several articles that agreed with the position that the chance of being audited by the IRS is very low. Aimee Picchi, associate managing editor for CBS MoneyWatch, stated in her article from April 11, 2024:
“So what are the odds of getting audited? Very low. Only 0.2% of all individual income tax returns filed for the 2020 tax year faced an audit, according to the most recent data available from the IRS. That means about 1 in 500 tax returns are audited each year.”
She went on to state that the taxpayers most likely to be audited are those with annual incomes exceeding $10 million (2.4% of those returns were audited in 2020). The second most likely group to get audited are low- and moderate-income taxpayers who claim the Earned Income Tax Credit.
As for the 87,000 new IRS agents being hired, the Inflation Reduction Act of 2022 includes about $80 billion in funding for the IRS over the next 10 years. About $45.6 billion will be used for IRS tax enforcement services through September 2031, and part will be used to hire more employees. However, VERIFY states that the Act does not specify the number of new hires for the IRS. The number comes from a May 2021 report from the Treasury Department that estimated that the additional funding would allow the IRS to hire that many employees. It is believed that most of the new hires would be replacements for retiring workers, including IRS enforcement agents and customer service and technology specialists.
Therefore, my advice to you is to rest easy at night. You can reference an article in Ratchet and Wrench, where I was interviewed about what to do in the (unlikely) event that you are picked by the IRS to have your return audited. But don’t wait until you get the notice – start now!
- Be prepared: This starts with having accurate and up-to-date books and records. Use QuickBooks Online or Xero to view your accounts on your computer or phone, so it’s convenient. The days of expecting your tax preparer to prepare your tax return from bank statements, an Excel spreadsheet, or a shoebox of receipts are long gone. Technology is too cheap and easy, and these online programs make it easy to be compliant.
- Never ignore any mail from the IRS: It’s true — the IRS will never call you and ask for a payment. That will be a scam, and ignoring that phone call is safe. However, your mailing address should always be updated with the IRS, and you should always respond to requests for additional information by the deadline listed in the letter.
- Ask Questions of your Service Providers: You know when a customer brings in their car after they’ve heard a weird knocking noise for six months, and the repair cost is so much higher because they didn’t bring it in as soon as they heard it? This is the exact same issue. If your service provider cannot produce financials for you to review, files an extension for your tax return every year, and fails to be able to answer the simplest questions in a complete and timely manner, find someone else!
Williamson Advisors is a national accounting firm specializing in providing monthly accounting services, Profit First coaching, and tax preparation and tax strategies to the auto repair industry.
