" IRS audited 6.66% of returns from filers with more than $10 million in adjusted gross income in fiscal year 2018, down from 14.52% in 2017 and even further down from 29.3% in 2011"

Wow, they used to audit 1/3rd of all filers in $10 mil/year bracket? I guess at that level, there aren't too many people with W2 form.

This seems absolutely insane.

> For those making less than $25,000, the audit rate fell 0.02% (to .69%) from 2017 to 2018.

Frankly, for it to be significantly above 0 seems grossly inefficient. I would assume that average rate of return for public money spent on auditing a millionaire is... a fair bit higher than that spent auditing someone earning 25k.

It’s not insane at all. Note that’s AGI - adjusted gross income.

If we stopped auditing those with AGIs less than $25,000, then all I’d have to do is take enough deductions (retirement contributions, unreimbursed business expenses, medical expenses, loss from property sales, tuition, etc) to get my AGI below $25,000 and I’d never have to worry about being audited.

Ever.

One way to significantly reduce your taxes is to lower your AGI. So if anything, the lower AGIs would be a good place to start looking for tax cheats.

Or we could just NOT use AGI and just use total income or some other metric which doesnt allow this stupidity.

That's an alarming equation. The harder you lie, the less likely you'll be called out on it.

What else in life works that way?

Politics ;-)

Except that auditing involves tax return in which the IRS has suspicion that there is more income than claimed, right? So of all the people who reported income of less than $25,000, the IRS apparently believed that 0.69% of them actually had income of much, much more. Maybe millions.

Is that the kind of thing that would show up in an audit? That is, if you're hiding millions of dollars, you're not just fudging the numbers. You've got a web of places to stash money that aren't directly connected to you. It would take a deep investigation of your finances, not just an audit.

I would be astonished if the IRS didn't use some sort of statistical analysis(AI) to trigger audits.

I hope they have third party data sources (banks, employers, stockbrokers, house/boat purchasers, etc.). By cross referencing the third party data with the contents of your return (automatically), they should be able to make a shortlist of people likely to be failing to declare something.

The reason for this is almost exclusively the Earned Income Tax Credit. A single filer claiming two children and earning $11,000 would be eligible for a (fully refundable) credit of $4,410. While this credit distributes a ton of needed benefit to low-income working families, I'm sure you can see where there's a strong incentive to defraud the system here. Both unscrupulous individuals and tax preparers can make a substantial amount of money quickly.

Since you can claim self-employment income without documentation, regular audits are necessary to prove actual income. It's also common for people to claim children who don't truly qualify; again, this would only be provable through actual audits.

In contrast, the average middle-class taxpayer tends to have both less built-in incentive to game the system and less flexibility (as most of their income will be documented to the IRS).

To defend the IRS a bit more: this program is in some ways an administrative model. Taxpayers don't need to prove any need to claim the credit. There aren't multiple rounds of paperwork, and, if you aren't audited, the only interfacing you have to do with the bureaucracy is in submitting your tax return, and you'll have money deposited in your bank account in a week. It may be the most effective welfare program, even accounting for audits (many of which are triggered by obvious red flags) in its ratio of benefits to "hoops needed to jump through."

I wouldn't be so sure.

Millionaires have access to lawyers and tax accountants and are more difficult to pin down.

A poor person can easily be bullied to handing everything over to the IRS -- probably with just a few mean letters.

How do you know they’re actually making less than $25K without audits?

It's easier to audit low income folks. They have simple forms and simple evidence. Generally they can be done via machine [here is the source: https://www.marketplace.org/2019/04/15/study-where-irs-audit...]

Whereas rich people have complicated forms, requiring more man-hours and actual human eyeballs to get involved.

That's why it happens. Not sure why you disagree, these are facts.