As this blog has reported on previous occasions, several people and businesses in the greater Chicago area are going to face a tax audit from the IRS in the upcoming weeks and months, assuming they have not done so already. It may leave an Illinois resident wondering what their chances of getting audited really are.
The answer depends in large part on how much money they make. For someone reporting income of less than $200,000, the chances of being audited in a given year are about 1 in 100, meaning that it is possible, but not very likely.
On the other hand, someone who reports over a million a year on their individual income tax returns has a greater than 10 percent chance of facing an audit, while people who earn over $200,000 have about a 5 percent chance of being contacted by the IRS.
Similar trends apply to tax returns for businesses; the more money one makes, the more likely the IRS will conduct an audit.
The reason for this is two-fold. For one, people who make more money tend to have additional and more complicated sources of income than just a job and a bank account. This means it is more likely that the will err on their return in some way. Moreover, the more one makes, the more difference mistakes make, meaning catching a high earner in an error yields more revenue for the IRS.
The bottom line is that, particularly for a high earner, it is important to make sure that his or her returns are correct to the most minute of details. Even then, an audit is still a real possibility. In the even such a person receives an audit notice, they should strongly consider seeking the help of a seasoned tax attorney.