What are your chances of being audited?

The IRS released it's latest data book which summarized the audit activity for fiscal year 2005 (ending September 30, 2005). 1.2 million returns were audited in FY 2005 out of 130.6 million filed, which works out to an audit percentage of 0.93%. So, you're chances are 1 in 100, right? Well, not exactly. It depends how much you made, what forms you filed, and how you filed.

If you made less than $25,000 and filed a 1040A, the audit percentage was 0.5%. If you filed the full 1040 (meaning you took itemized deductions), your chance of being audited tripled. Made over $100,000? Your chance of being audited acutally fell from 1.4% to 1.2% in FY 05. Are you a farmer? Congratulations! You had some of the lowest audit rates at less than 0.5% if you made under $100,000.

The highest percentage of audited returns were people that filed a Schedule C for an unincorporated business. As I've discussed before, the IRS is hitting these returns hard because of rampant fraud in claiming personal expenses as deductible business expenses. If you made less than $25,000 or more than $100,000, you had a 1 in 25 chance of being audited (still not a great chance). If you made between $25,000 and $100,000 your audit chance was 1 in 50.

All of this doesn't include computer matching audits (matching your income to filed W-2s from employers) and simple mathematical mistakes.

Now, if you're lucky enough to get selected for audit, what are your chances of making it through without an adjustment? Well, not very good. The IRS broke it down by who does your examining, but none of the subsets had more than a 1 in 5 chance in getting a "no adjustments" audit. If you get referred to a tax examiner, your chances are 1 in 20 of not getting at least one adjustment.

So, your chances of being selected are not very good (as long as you file a correct return) but if you get selected, the IRS will likely make changes to it. Remember though, that the IRS uses a computer scoring program to score you against the norms for your income group and uses a different program to match you to any 1099s and W-2s filed by others. So, even though your chance of being selected is low it still doesn't pay to cheat on your taxes.