Gettry Marcus Discusses Changes in 2013 IRS Audit Rates Among Individual and Business Taxpayers

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Leading tax and forensic accounting firm Gettry Marcus CPA, P.C., comments on newly released information about 2013 IRS audit rates.

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Gettry Marcus, a leading tax and forensic accounting firm, discusses recently-released 2013 IRS audit statistics. The statistics show a drop in audits among all income groups for fiscal year (FY) 2013, with the overall individual audit coverage rate at its lowest level since FY 2006. At the same time, the number of IRS employees working audits has decreased.

Taxpayer groups
For statistical purposes, the IRS groups taxpayers into particular categories. The IRS generally defines higher income taxpayers as individuals with incomes over $200,000. The IRS also identifies taxpayers with incomes above $1 million for statistical purposes. Similarly, it groups businesses into various categories based on their assets. The IRS also identifies S corporations and partnerships for statistical purposes.

Audit types
The IRS groups different types of audits into various categories. Field audits are generally full audits. Correspondence audits are generally audits conducted by correspondence with the taxpayer. These categories are very broad and a particular taxpayer’s audit experience may vary.

In FY 2013 (October 1, 2012 to September 30, 2013), the overall individual audit rate was 0.96%. That compares to an overall individual audit rate of 1.03% for 2012 and 1.11% for 2011. The last time the overall individual audit rate was below 1% was in 2006.

To put the overall percentage in perspective, the IRS received 145,819,388 individual returns in 2013. The agency selected 1,404,931 individual returns for examination. The vast majority of these audits - 1,060,779 - were correspondence audits. The number of field audits was 344,152.

As incomes climb, so does the audit coverage rate. The IRS selected 3.26% of returns for examination from taxpayers with incomes above $200,000 in 2013, compared to 0.88% for taxpayers with incomes under $200,000. Both percentages reflected a drop from 2012, when the IRS selected 3.70% of returns for examination from taxpayers with incomes above $200,000 and 0.94% of returns for examination from taxpayers with incomes under $200,000.

The audit rate for taxpayers with incomes over $1 million also fell in 2013. The IRS selected 10.85% of returns for examination from taxpayers with incomes above $1 million compared to 12.14% in 2012 and 12.48% in 2011. In each of these years, the number of returns reporting incomes above $1 million increased but the audit rate declined.

Within the higher income groups, the number of field examinations actually increased in 2013 compared to 2012. However, the number of correspondence examinations decreased. Some of the increases in field examinations could be attributed to the IRS’s emphasis on curbing tax evasion by hiding assets in unreported foreign accounts. The IRS has encouraged taxpayers with unreported foreign accounts to come forward in its offshore voluntary compliance program.

Audits of all types of businesses also declined in 2013. The IRS reported that it selected 0.61% of all business returns for examination, compared to 0.71% in 2012. For the first time in three years, the audit rate of both small and large corporations declined. The IRS selected 0.95% of returns for examination from corporations with assets under $10 million and 15.84% of returns from corporations with assets over $10 million.

S corporations and partnerships are among the most popular business entities for small and mid-size businesses. The IRS received 4,476,307 S corporation returns in 2013 and 3,550,071 partnership returns in 2013. The audit percentage rate for S corporations and partnerships was the same in 2013, at 0.42% compared to 0.48% for S corporations in 2012 and 0.47% for partnerships in 2012.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Gettry Marcus CPA, P.C., a top New York City and Long Island CPA firm with offices in Woodbury, Long Island and New York City. We provide accounting, tax, and consulting services to commercial businesses, high net worth individuals and various industries which include real estate and health care. We have one of the premier and most credentialed business valuation, litigation and forensic accounting groups in the New York Area. Our experience in diverse industries and a highly talented and experienced professional staff gives us the ability to share valuable insights into our clients’ businesses, to better understand their goals and problems and to help them attain the vision they have for their company.

Gettry Marcus is "Always Looking Deeper" to build value for our clients.

Media inquiries: Contact Fayellen Dietchweiler at 516-364-3390 ext. 225 or at
Fdietchweiler (at) gettrymarcus (dot) com


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Scott Darrohn
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Fayellen Dietchweiler
Gettry Marcus
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