How do IRS audits affect low-income families?
The IRS audits a disproportionate (but still small) share of tax returns that include EITC claims. The agency has found that average discrepancies between taxes owed and taxes paid are smaller on EITC returns than on all returns.
IRS Audits of EITC Returns
In FY 2015, the IRS audited 1.4 million of the almost 192 million returns filed, less than 1 percent of the total. Returns claiming an EITC were audited at a rate more than twice that of all individual income tax returns: 1.7 percent compared with 0.8 percent. Almost all these audits (92 percent) were correspondence audits, meaning the tax filer was notified and could respond by mail.
For all individual income tax returns audited in FY 2015, the IRS recommended higher taxes on 89 percent. For EITC returns, the agency recommended higher taxes on a slightly higher 91 percent. The average amount of money the IRS attempted to collect on all audited returns was $10,022. The average amount on audited EITC returns was $4,917. The IRS recommended additional refunds on 3.2 percent of all individual income tax returns versus 1.2 percent of EITC returns. The average recommended refund on all returns was $27 compared to $5 for EITC returns.
Internal Revenue Service. 2015. Internal Revenue Service Data Book, 2015. Washington, DC: Internal Revenue Service.