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Strayer Saylors & Associates, Inc.

Chances for Being Audited

The Internal Revenue Service (IRS) recently released its 2006 Data Book which describes activities conducted by the IRS from October 1, 2005, through September 30, 2006, and includes information about returns filed and taxes collected, enforcement, taxpayer assistance and the IRS budget and workforce.

During Fiscal Year (FY) 2006, the IRS collected more than $2.2 trillion in tax and processed over 228 million returns. Over 80 million returns, including 54.3 percent of individual income tax returns, were filed electronically in FY 2006. Over 108 million individual income tax return filers received tax refunds totaling $243 billion. In FY 2006, IRS spent an average of 42 cents to collect each $100 of tax revenue.

IRS examined nearly 1,283,950 individual income tax returns in FY 2006, more than double the number examined in FY 2000. Examinations of business tax returns grew for the second year in a row, reaching over 52,000 in 2006.

What are the chances of being examined? Based nearly 1.3 million audits of the 132.2 million returns filed the odds of being audited are about .98% which is a little more than double the prior year. Because it is so susceptible to fraud, 517,617 return claiming Earned Income Tax Credit (EIC) were audited accounting for over 40% of the return audited.

The IRS through is various information reporting requirements for payers and businesses combined with its computer matching programming has become very sophisticated in conducting correspondence audits which are more cost effective for the IRS and amounted to over 76% of the audits. The balance amount and bulk of the audits were conducted by revenue agents, tax compliance officers, and tax examiners.

The following table shows the chances of being examined in fiscal year 2006 as compared to fiscal year 2004. The figures include correspondence examinations, office examinations and field examinations. The data is classified by types and amounts of income, type of returns, etc.