Audit trends vary depending on taxpayer incomes. The IRS receives and processes most tax returns without further examination. However, there are a variety of factors that can attract the attention of the IRS and increase the chances that the return will be audited through a correspondence examination or assigned to an auditor for further consultation. According to the study, in the years after an audit, children who were listed on one taxpayer's return were often listed on another taxpayer's return.
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. According to the data from the new study, most end up without the taxpayer responding at all, and the poorer the objective of the audit, the more likely that is to happen. As the agency's ability to audit the rich weakens, its scrutiny of the poor has remained constant in recent years. In the years after the audit, wage earners were 68% less likely to apply for the credit compared to similar taxpayers who had not been audited.
Most EITC audits require taxpayers to look for documents that show that a child meets the legal threshold of “qualifying child,” a status that is different from that of dependent. Because EITC audits are largely done by mail by lower-level employees from a central location, they are “less burdensome for taxpayers than in-person audits, since they send their documentation by mail and don't have to take time out of the working day,” Patterson said. In a statement, IRS spokesman Dean Patterson acknowledged that the sharp decline in audits of the wealthy is due to the fact that the agency has lost many qualified auditors. However, according to experts and officials, not all of those employees will be hired at the same time, not all of them will be auditors and, in many cases, they will replace employees who are expected to resign or retire.
Meanwhile, a new study shows that audits of poor taxpayers make them much less likely to apply for the credits they might be entitled to. The IRS currently has about 80,000 workers, ranging from auditing officers to customer service employees. At one end of the spectrum were tax returns with warning signs that almost certainly would be audited. Because the IRS carries out so many EITC audits, between 380,000 and 600,000 a year for at least the past decade, it is likely that hundreds of thousands of taxpayers have avoided applying for the credit in response to being denied through an audit.
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