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IRS data shows fewer audits of individuals, but more of businesses

Due in part to IRS budget cuts, individual taxpayers are being audited less frequently than in the past, but other taxpayers are seeing more audits than before.
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    December 08, 2013 /24-7PressRelease/ -- In recent years, the Internal Revenue Service has been conducting fewer audits of taxpayers, according to a recent U.S. Treasury report. However, while IRS enforcement actions are down overall, audits have been increasing for certain types of taxpayers.

According to a report by Bloomberg News, tax audits have been in decline since 2009. The trend corresponds to substantial budget cuts that have reduced the IRS workforce by thousands of employees. From 2010 to 2012, the IRS eliminated 14 percent of its workforce, or approximately 8,000 employees. More than half of the eliminated employees had been primarily responsible for conducting tax audits and other enforcement actions.

IRS workforce reduced by budget cuts

With fewer auditors available to keep tabs on taxpayers in recent years, the revenue generated through the audit process has also dropped off, albeit somewhat less sharply. In 2012, tax audits and other IRS enforcement actions brought in about 9 percent less than the year before -- a difference of more than $50 billion, the U.S. Treasury reported.

Personal tax returns are among those that have seen decreased audit activity since the budget cuts took effect. According to IRS data, about one in every 97 personal tax returns was audited in 2012. Just two years earlier, in 2010, the IRS audited about one in every 90 individual returns.

But while individuals have enjoyed a slightly reduced risk of tax audits in the wake of recent budget cuts, other taxpayers are seeing their returns audited at a higher rate than in the past. Specifically, the IRS appears to be targeting business owners more harshly for tax enforcement purposes. For example, partnerships and S-corporations both saw their audits increase by one-third or more from 2010 to 2012. In addition, overall audits of corporate taxpayers have spiked by 15 percent since 2009, Bloomberg reports.

Simple precautions can help prevent tax audits

Even if they have never experienced a tax audit firsthand, most people are aware that being audited by the IRS can be an exhausting, frustrating and potentially costly experience. Unfortunately, anyone can end up being audited by the IRS, regardless of whether they have actually done anything wrong. However, there are a few steps that individuals and business owners can take to help reduce the chances that their tax returns will be flagged by the IRS, such as:
- Checking their returns for simple mathematical errors, omissions or typos that could trigger a close examination by IRS staff.
- Using separate bank accounts for business and personal expenses, and taking extra care to deduct only eligible business expenses. This is especially important when claiming a deduction for a home office.
- Avoiding drastic changes in charitable giving from one year to the next, particularly if there is no corresponding change in income.

No matter how careful you are, however, there is always some chance of being audited. If this occurs, it is important to get help from a knowledgeable tax lawyer to help protect your interests throughout the process.

Article provided by Bredemann & McFarlane, PLC
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