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Reduced funding for the IRS leads to less audits

Data from the 2012 fiscal year shows that there may be some relationship between the reduced budget for the Internal Revenue Service and the percentage of tax returns that are audited each year. Between the 2010 and 2012 fiscal years, the IRS suffered from a three percent reduction in its budget. This in turn lead to workforce reductions, sending 8,000 full-time employees packing. Out of those 8,000, about 5,000 were auditors. Given those numbers, it is not a big surprise that the IRS collected 13 percent less revenue through audits in 2012.

During this period, corporations and other types of businesses experienced an increase in scrutiny from the IRS, while individuals were audited at a lower rate. While the reason for this is unclear, it may be because corporate audits bring in more revenue

During the 2012 fiscal year, the IRS audited only one in 97 individual returns, a decrease from the previous years. There was also a decrease in the proportion of estate tax returns that were audited in 2012. At the same time, businesses like corporations and partnerships were undergoing more audits, for example there was a 33 percent increase in audits for S corporations in 2012.

So what does this mean for the average California taxpayer? Well, it means that for individual returns there is a lower likelihood of undergoing an audit. However, the number from 2012 was still one in 97, which is still fairly high odds. This means it is important to be thorough and complete on an income tax return and to make sure that there are no errors. If there are errors that trigger an audit, California taxpayers should know their rights when it comes to dealing with the IRS. 

Source: Bloomberg Businessweek, "The IRS Hasn't Been Going After as Many Taxpayers as Before. Why?" Kristen Hinman, Sept. 18, 2013

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