IRS Audit Rates Have Crashed
With limited resources, the IRS has to prioritize audits that are both easy to conduct and likely to generate revenue — a calculation that doesn’t affect all taxpayers equally.
Source: US Government Accountability Office
IRS Funding Cuts Lead to Fewer Audits
Between 2010 and 2022, the IRS’s overall budget was cut by 24% after adjusting for inflation. Enforcement funding was hit the hardest, falling by nearly 28% over that span. From the IRS’s perspective, audits are investments: they deploy staff and time to recover unpaid taxes — often with a strong return.
Figure 1 clearly shows that audit rates dropped by 72% between 2010 and 2019; however, the most dramatic change occurred in the ultra-high income group. These earners of over $5 million per year used to be audited at a rate of 16%. This makes sense from the perspective of a formerly well-funded IRS. The wealthiest taxpayers are the most likely to have the most in unpaid taxes as a function of their being the wealthiest. However, they are also more likely to have financial sophistication in the form of accountants, many different sources of income, business expenses, etc. Yes, the IRS could get a lot out of an audit of a high-net-worth person, but this is a high-risk, high-reward situation for the IRS.
If we look at Figure 2, after the $500k-$1m category, the next most likely to be audited are recipients of the Earned Income Tax Credit (EITC). It is a federal tax break for low to moderate income workers, especially those with kids, meant to reduce poverty. The recipients of this credit are some of the financially worst off in the United States. On its face, auditing some of the poorest Americans more often than the middle class seems harsh. EITC filers were audited at a rate of 0.77%, while someone earning $200–500k faced just 0.17%.
The reason lies in cost and yield. EITC audits are faster, cheaper, and more likely to result in a change to the filer’s taxes. These audits are typically handled before refunds go out and are conducted by mail. The IRS isn’t making an emotional judgment — it’s making a tactical one.
Final Thoughts
Studies consistently show that every dollar spent on IRS audits returns more than a dollar to the American government. Depending on the tax bracket, audits can return as high as $12 per $1 spent on average. Funding cuts have weakened one of the few tools we have to ensure fairness in the tax system. Reinvesting in enforcement strikes me as a no-brainer.
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