The IRS is disproportionately targeting low-income households due to budget cuts. A study by Syracuse University’s Transactional Records Access Clearinghouse (TRAC) shows that households making $1 million and more are audited 1.5% of the time, those making $200,000 – $1 million are audited 8.9% of the time, those making $25,001 – $200,000 get audited 35.2% of the time, and those households making less than $25,000 are audited 54.4% of the time. Which means more than half of the IRS audits are directed at households making less than $25,000. The Office of the Assistant Secretary for Planning and Evaluation (ASPE) website provides poverty guidelines for different household sizes. For a household with three members, the poverty line is $24,860 as of 2023.

According to the IRS website, “Selection for an audit does not always suggest there’s a problem.” An audit is a review of a person’s or organization’s accounts or financial information based on the tax law to verify the accuracy of information. The website also explains how individuals or organizations are chosen for an audit. There are two methods; one is a random selection and computer screening, and the other is a related examination, which means a person may be chosen for an audit if they have done business with an individual or an organization that is being audited.

The methods for audit selection seem fair and reasonable, so why does more than 54.4% of the IRS target low-income households? The answer to this question has more to do with a lack of resources on the part of the IRS than nefarious means. The Center on Budget and Policy Priorities (CBPP) reports that from 2010 to 2021, the IRS budget has declined by 19%, which led to a decline in staff by 22%. To make a strenuous situation more dire, tax returns filed have increased by 7% over that same period. Taking a closer look at the severity of the decline of IRS staff workers, we see that “auditors who are uniquely qualified to process the complex returns of high-income individuals and corporations–have fallen 39 percent.” We see that the IRS is forced to do more with fewer resources.  

The budget cuts have left the IRS operating at a disadvantage. Due to the cuts between 2010 and 2020, the agency’s overall audit rate has declined by 58%. A closer look at the overall declining auditing rate shows that the auditing rate for corporations has declined by 54%, 71% for millionaires, and 40% for low- and moderately earned income households. As we can see, auditing has declined drastically for everyone, especially for millionaires and corporations, but it does not answer the question as to why the IRS is focusing their effort on low–income households. The answer is that low-income households are low-hanging fruit for the IRS. If we were in the wild, low-income households are the injured gazelle that the hyenas/IRS choose to go after. 

One reason is that wealthy households have access to more resources to fight an audit that may lead to an unfavorable judgment. Compared to a low-income household, a wealthy household has the means to drag out an audit, resulting in the IRS spending more resources than what they could gain from a judgment. Another reason why the IRS targets low-income households is because low-income households’ finances are much simpler than wealthy households’. The more complex the finances of a household, the more resources the IRS will need to conduct a proper audit. Low-income households tend to have fewer sources of income and less complicated financial lives, which makes it much easier to audit.

What can you do if you don’t have the means and you’re being audited by the IRS?

As was mentioned earlier, an audit does not necessarily mean a problem. The first thing you want to do if you’re ever audited by the IRS is to verify the legitimacy of the audit. It’s not far-fetched to think scammers will go to the length of mailing fake documents or posing as an IRS officer to gather sensitive information on individuals. If a letter is mailed to you, verify the contact information by doing a quick internet search and compare similarities. Also, if there is a phone number, you can call and have the operator verify their validity. Any in-person meeting with an IRS officer should be created by an IRS office, and identification should be provided by the IRS officer during a meeting.

Tax laws in the United States can be complex and confusing, especially if there are new laws that go into effect while you’re filing. Due to this fact, mistakes by an individual filling can lead to mistakes, which in turn cause an audit. It’s in your right to contact a tax professional that understands the unique position that you may be in. Also, if you’re not able to hire a professional due to lack of financial means, you can contact a tax professional that will provide pro bono service that is suitable for your situation.

During an audit, a request for certain documents and information may be requested; it is important to have that information/documents ready. If you’re not able to provide those documents, contact a tax professional and seek advice on your situation. It’s important to respond to the IRS in a timely manner and not after any deadlines.

After an individual provides all information and documents requested by the IRS, the IRS will review all documents and follow up with the individual. They may request more information or be satisfied with what is presented. Whatever the outcome of the audit is, a person has the right to appeal, which is usually thirty days. A person should take any legal means if they disagree with the outcome of an audit. This process can be very laborious, especially if you don’t have the financial means. It is your responsibility to weigh the pros and cons of fighting an auditing decision you do not agree with.

FINAL THOUGHT

The budget cuts to the IRS have weakened the agency’s ability to collect taxes and conduct audits. While this may seem like a positive for those who do not want to pay taxes, it also has the result of disproportionately targeting households that are finding it hard to make ends meet. Until this issue is addressed, resulting in a more fair auditing process, if you’re audited by the IRS and you’re not a wealthy person, do not ignore it, hoping it will go away. Cooperate as best as you can and follow some of the tips in this post.