The IRS has published the 2016 version of its annual IRS Data Book, which contains statistical information about the IRS and taxpayer activities during the previous year. The IRS Data Book helps illustrate the breadth and complexity of the U.S. tax system. According to the Data Book, during fiscal year 2016 (Oct. 1, 2015 to Sept. 30, 2016), the IRS collected overall more than US$ 3.3 trillion from taxpayers, processed more than 244 million tax returns and other forms, and issued more than $426 billion in tax refunds.
The IRS also audited almost 1.2 million tax returns during fiscal year 2016. Over 90% of the audited returns were individual income tax returns. While the percentage of overall returns audited was relatively low at 0.6% overall, the percentages were significantly higher for two types of taxpayers – wealthy individuals and individuals filing international returns.
Audits of the Wealthy
For 2016, as in past years, the higher your income, the more likely that the IRS would audit your return. According to the Data Book, this is how the numbers shook out for individual nonbusiness returns:
|Positive Income||% of Returns Audited|
|Less than $200k||~0.9%|
|Between $200k and $1m||~1.0%|
|$1m or more||~5.8%|
Audits of International Returns
Expats should take careful note of the very high percentage of international returns that were audited in 2016 – namely 3.9%. This represents a likelihood that is nearly five times higher than the overall average of 0.6%.
The IRS’s crackdown on taxpayers living overseas through FATCA and other means clearly played a major role in the audit focus on international tax returns.
Outlook for 2017 and Beyond
The audit percentages in the 2016 Data Book give a good indication as to the likelihood of being audited in 2017 and beyond. It is possible, however, that 2017 will see a jump in audits of international returns due to foreign bank account information flowing into the IRS from FATCA partner countries.