NEW YORK (MainStreet) The number of audits dropped by 5% to about 1.5 million last year, and the overall chance of being audited this year is only 1%, according to IRS data. That's good news for most, except the prosperous. Earners with incomes of $200,000 or more had an audit rate of 3.26%. Those with incomes of $5 million or more have an 18% chance of being audited, and the odds jump to 27% for taxpayers who earn more than $10 million.
Advice for the average American unlucky enough to get audited is to prepare to write a lot.
"Most communication with taxpayers is now by correspondence," said Jeremy Scott, editor of Tax Analysts.com's Tax Notes. "The IRS's ability to answer phone inquiries is down. The IRS does not do a good job informing taxpayers of their rights during an examination process."
At issue is how effective appeals of audits actually are.
"Appeals are located within the IRS and under the commissioner," said Scott. "However, it is supposed to be independent in terms of its decisions. There is an appearance that it is not."
The IRS has introduced rules on ex parte communications that bar the appeals department from communicating with other parts of the IRS except in limited circumstances with attorneys.
"Many taxpayers doubt whether those safeguards work and an appeal is often viewed as just a repeat of the audit," Scott told MainStreet.
Taxpayer Advocate Nina Olson is trying to change this by proposing to implement a bill of rights that would give the public a shared understanding of how taxpayers should be treated by their tax authorities.