The IRS generally audits less than 1% of all tax returns filed in a tax year. The IRS has the difficult task of auditing taxpayers who apply for the EITC. Low-income families are often complicated; they are more likely to be multigenerational than wealthier people, for example, or to add or subtract household members from year to year. A study conducted by the Center for Tax Policy, which is not partisan, revealed that only about 48 percent of low-income households with children were married couples, while in other households it was 75 percent.
The audit made her strive to obtain documents from her granddaughter's doctor, pharmacy, hospital and school to prove that the girl had lived at her address. Therefore, to get a full picture of the audit rate for a specific fiscal year, audits in progress and completed audits should be included. Finally, she arrived at Legal Aid of Arkansas, where a lawyer helped her to strengthen her case, but, a year after the start of her audit, she is still waiting for the outcome. Preventing defective refunds from being received, rather than trying to recover them through an audit, is “always the best option because it's more effective,” said Jesse Solis, spokesman for the chairman of the House Ways and Means Committee, Kevin Brady, a Texas Republican.
Tax audits are a critical compliance tool to help ensure fairness in the tax system, and the IRS works hard to ensure that the agency's audit selection process is fair and unbiased. A survey conducted by the Taxpayer Advocate Service revealed that more than a quarter of the EITC beneficiaries who were audited did not even understand that they were being audited. At the end of the day, the IRS strives to adequately serve taxpayers who comply with the rules and comply with the country's tax laws, which range from audits and civil notices to criminal investigations in the most egregious cases. But it also means that people who are audited are more likely to see their refund withheld rather than receiving the credit and then undergoing an audit.
Generally, the IRS can audit returns filed in the past three years, but there are some situations where the IRS can audit even older returns. However, before a taxpayer audit is conducted, the IRS's professional leadership team must make high-level decisions about where to focus our limited auditing resources across the agency. Auditing decisions are based on the financial information that appears (or isn't) on the tax return. One reason is that it is based on the outcome of audits, and low-income taxpayers are much less likely to have competent representation to challenge the findings of the IRS.
IRS computers choose people to audit, but if those taxpayers respond, a person must review the documents. It's easier for income to go unreported and for business and personal assets to be combined for taxpayers who carry out an activity or business as a sole owner or as an independent contractor, form a partnership or an LLC that carries out an activity or business, or who are otherwise dedicated to themselves (including part-time businesses).