IRS Exam Statistics: Summary Highlights & IRS Links

IRS Examination Selection Criteria - Background 

Tax returns may be selected by the IRS for examination on the basis of the IRS' computer scoring program known as the Discriminant Inventory Function System (DIF). This scoring program assigns a numeric score to each individual and some corporate tax returns after being processed. If a taxpayer's return is selected because of a high score pursuant to the DIF system, the potential is high that an examination of your return will result and change to your income tax liability.

Taxpayers returns may also be selected for audit based on third-party information, such as Forms 1099 and W-2 documents, that does not match the information reported on the return. Alternatively, a taxpayer may be selected to address both the questionable treatment of a tax item and/or for the IRS to further evaluate a market segment of taxpayers in handling a tax issue.

 

Furthermore, your return may be selected as a result of information received from other sources on potential noncompliance with the tax laws or inaccurate filing. This information can come from a number of sources, including newspapers, public records, and individuals. The information is evaluated for reliability and accuracy before it is used as the basis of an examination or investigation.

See Publication 556 (09/2013), Examination of Returns, Appeal Rights, and Claims for Refund 

IRS Enforcement: Examinations - FY18 (Calendar Year 2017)

In Calendar Year 2017 (FY18) approximately 1,826,883 million C-Corporate income tax returns were filed. However, the complexity of the taxpayer's structure, claims, and industry generally impact the likelihood of examination. As noted below, nearly two-thirds of corporate returns selected under audit may receive an unfavorable outcome upon audit by the IRS.

Nevertheless, retaining expert tax consulting and advocacy to document and sustain your tax position in defense against the IRS may greatly improve your odds of audit success. The outcome upon audit not only may impact that exam period's tax claim, but the company and/or shareholder's claim on future returns and tax implications.

  • Approximately 0.9% (16,116 tax returns) of all C-Corporation income tax returns filed (1,826,883 tax returns) in Calendar Year 2017 were audited by the IRS.

    • Among the 16,116 corporate returns selected for audit, approximately only 31% (field audit) and 32% (correspondence audit) received no change from the original amount claimed.

      • IRS conducted the majority of Fiscal Year 2018 audits, 74.8 percent, via correspondence. The remaining 25.2 percent were conducted in the field.

    • 7.6% (1,229 corporate returns under audit) the taxpayers did not agree with the IRS examiner’s determination. 

    • Only 1% (1,532 corporate returns under audit) received additional refunds to the taxpayer.

  • See 2018 IRS Tax Data BookIRS Enforcement: Examinations; SOI Tax Stats - All Available Years - IRS Data Book

IRS Enforcement: Examinations & R&D Credit Claims - FY14 (Calendar Year 2013)

In Calendar Year 2013 (FY14), out of approximately 1,924,887 million C-Corporate income tax returns filed less than 0.9% (16,624 tax returns) actually filed claims for the R&D tax credit. And considering the 2017 Calendar Year C-Corp filings analysis, as noted below, stating nearly two-thirds of corporate returns selected under audit likely received an unfavorable outcome upon audit by the IRS, these statistics also likely apply to R&D tax credit claims. 

 

Often the IRS will aim to reduce and negotiate down your original tax benefit claimed. As such, the importance of retaining substantive documentation (e.g. R&D tax credit support) is essential to ensure all eligible and qualified dollars are retained by the taxpayer business and/or its shareholders.

  • Approximately 1.4% (28,235 tax returns) of all C-Corporation income tax returns filed (1,957,278 tax returns) in Calendar Year 2013 were audited by the IRS.

    • Among the 28,235 corporate returns selected for audit, approximately only 29% (field audit) and 45% (correspondence audit) received no change from the original amount claimed.

    • 7.2% (2,024 corporate returns under audit) the taxpayers did not agree with the IRS examiner’s determination.

    • 9.1% (2,557 corporate returns under audit) received additional refunds to the taxpayer.

  • Currently, the IRS R&D Credit Claim statistics publication presents data between 1990-2013 tax years. only.

  • See 2014 IRS Tax Data Book 

  • See [2013] SOI Tax Stats - Corporation Research Credit 

FY18 Returns Filed, Taxes Collected & Refunds Issued

  • The IRS collected nearly $3.5 trillion in gross taxes in Fiscal Year (FY) 2018 and issued more than 122 million refunds, amounting to almost $464 billion.

  • The IRS processed more than 250.3 million Federal tax returns and supplemental documents.

  • Almost 179 million returns and other forms were filed electronically. These represented 71.5% of all filings, an increase of 1% over the share of electronic filing in FY 2017.

    • Almost 88% of individual tax returns were filed electronically.

  • See IRS Returns Filed, Taxes Collected & Refunds Issued Link

SOI Tax Stats - State Data FY 2018​

IRS Budget & Workforce 

  • Although the IRS’s actual expenditures were $11.7 billion for overall operations in Fiscal Year (FY) 2018, up from about $11.5 billion in FY 2017. The actual workforce has been significantly reduced over the years as the IRS have began automating its operations through software and new technologies. 

  • In FY 2018, the IRS used 73,519 full-time equivalent positions in conducting its work, a decrease of 15.5 percent since 2013.

  • See IRS Budget & Workforce

IRS Exam Publication

IRS Exam Forms (and Instructions)

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