IRS 2010 Data book was issued and provides statistical data on its fiscal 2010 activities. The data book provides some clues for your chances of an audit. There were 142,823,105 individual tax returns were filed (October 2, 2009 to September 2010) and 1.1% or 1,581,394 were audited in 2010. Of the total audited returns 473,999 or 30% were returns with earned income tax credit (EITC). Only 21.7% of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners and revenue officer examiners; the bulk of the audits (about 78.3%) were correspondence audits.
A correspondence audit is the lowest level of auditing performed by the IRS and they are performed by mail. The IRS computers examine the information in there computers to the information received from third parties. If the information does not match the IRS typically requests additional information regarding a specific item or issue on the tax return. The correspondence audit can typically be resolved by replying by the dates on the letter.
Following are selected audit rates for individuals not claiming the EITC:
- Business returns (excluding farm returns) showing total gross receipts of $100,000 to $200,000, 4.7% of returns were audited in FY 2010, up from 4.2% in FY 2009.
- Business returns (excluding farm returns) showing total gross receipts of $200,000 or more, 3.3% of returns were audited in FY 2010, versus 3.2% in FY 2009.
- Returns showing total positive income of $200,000 to $1 million, 2.5% of returns not showing business activity were audited, and 2.9% of returns showing business activity were audited; for FY 2009, these percentages were 2.3% and 3.1% respectively.
- For FY 2010, the audit rate for returns with total positive income of $1 million or more was 8.4%, a substantial increase from the 6.4% rate in FY 2009.
The audit rates for business returns were as follows:
- Corporate returns other than Form 1120S, 1.4%, versus 1.3% for the year before.
- Small corporations with total assets of: $250,000 to $1 million, 1.4%; $1–$5 million, 1.7%; and $5–10 million, 3%. For FY 2009, the percentages were, respectively, 1.3%, 1.8%, and 2.7%.
- Large corporations with total assets of $10 million or more, the overall audit rate was 16.6%, up from 14.5% for FY 2009. The audit rate for these corporations increased with the size of the entity. For example, the audit rates were 13.4% for those with total assets of $10–$50 million (up from 10.1% for FY 2009); 16.1% for those with $250–$500 million (versus 15.8% for FY 2009); 45.3% for those with $5–20 billion (down from 48.7% for FY 2009), and 98% for those with $20 billion or more (down from 100% for FY 2009).
- Partnership and S Corporation returns, the audit rate was .4%, the same as for the year before.
Math errors on individual returns accounted for roughly 10.5 million notices that IRS sent out relating to the 2009 return, 60.8% were a result of the making work pay credit.
- 9% were for tax calculation/other taxes (which includes errors related to self-employment tax, alternative minimum tax, and household employment tax),
- 4.9% related to exemption number/amount,
- 4.4% related to the EITC,
- 4.1% related to the standard/itemized deduction,
- 13% related to the first-time homebuyer credit.
FY 2010 penalty assessments:
- 57.3% for failure to pay
- 27.3% for underpayment of estimated tax
- 13% for delinquency.
- 42.1% of these assessments for businesses were either failure to pay or underpayment of estimated tax.
The IRS initiated 4,706 criminal investigations in FY 2010.
- 3,034 referrals for prosecution and 2,184 convictions.
- 81.5% of the sentences were incarcerated (a term that includes imprisonment, home confinement, electronic monitoring, or a combination thereof).
Source: RIA Checkpoint and IRS 2010 Data Book.
Posted by Kevin Donahue 
