Help!! Audited on my 2021 Taxes over baseball cards!!

[Exhibitman]

Originally Posted by Gorditadogg

Adam, the IRS goes where the money is. The big guys have the highest odds of getting audited.

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Logical but not true. Per the Motley Fool, in 2022, there were 12.7 audits per 1,000 returns filed by the lowest-income wage earners (making it a 1.27% chance of audit) compared with 3.8 per 1,000 returns filed by all other individual taxpayers. They don't go where the money is, they go where the low-hanging fruit is, and people who cannot fight are the easy ones.

[raulus]

Originally Posted by Exhibitman

Logical but not true. Per the Motley Fool, in 2022, there were 12.7 audits per 1,000 returns filed by the lowest-income wage earners (making it a 1.27% chance of audit) compared with 3.8 per 1,000 returns filed by all other individual taxpayers. They don't go where the money is, they go where the low-hanging fruit is, and people who cannot fight are the easy ones.

Not sure where the fool gets their data, although I suspect they could be right.

In other news, GAO published a report on IRS audits for 2019, which you can find here:

https://www.gao.gov/products/gao-22-104960

If you're too lazy to click the link, then you can read the table below.

I do wonder if part of the issue is people who make a lot more, but report a lot less. So they fall into the bottom group, yet they get audited a lot more because they're obviously hiding income.

[gunboat82]

Originally Posted by Exhibitman

Logical but not true. Per the Motley Fool, in 2022, there were 12.7 audits per 1,000 returns filed by the lowest-income wage earners (making it a 1.27% chance of audit) compared with 3.8 per 1,000 returns filed by all other individual taxpayers. They don't go where the money is, they go where the low-hanging fruit is, and people who cannot fight are the easy ones.

This is a bit misleading without context, because the higher audit rate for low-income earners is heavily skewed by people who claim the refundable Earned Income Tax Credit. And even with a credit so ripe for abuse with manipulated earnings, the IRS made it a point in 2023 to reduce the number of audits that target that group.

[JustinD]

Originally Posted by gunboat82

This is a bit misleading without context, because the higher audit rate for low-income earners is heavily skewed by people who claim the refundable Earned Income Tax Credit. And even with a credit so ripe for abuse with manipulated earnings, the IRS made it a point in 2023 to reduce the number of audits that target that group.

Looking at this chart and the report, it becomes more obvious how many lower income earners are targeted because of pure numbers.

The government loves to create graphs and statistics that slant the perception toward the narrative they wish you to believe. Honestly, one of my largest pet peeves.

This chart is simply stating the number of requested audits from those income brackets with no comparable of actual filed taxes in each bracket. As only the top 1% of the populous earns over 650k in a single tax year, those last 3 bars contain a fraction of filers. Those audit rates can be from a pool of hundreds in the top bracket vs 10's of millions in others. The amount of filers that claim incomes in excess of 5m positive yearly has to be a atom in the mass structure of Americans (1% of the population is 650k+ earners, so it would be a tiny fraction of that 1%). Previous studies has placed the percentage of Americans with a total net worth of 5m+ at around 9%. The number making that annually as a claimed positive is truly infinitesimal.

They could audit 100% of all over 650k top earners and it would still be dwarfed by astronomical numbers of low earners being handcuffed with tax burdens of audits they can't afford to fight. The IRS absolutely knows where they get the majority of audit collections from and it isn't from the top earners.

They fully admit so in the GAO report- "IRS officials said audit rates declined due to staffing decreases and because it takes more staff time and expertise to handle complex higher-income audits."

It also makes sense to not beat your gift horse mercilessly. The top 1 percent earned 22.2 percent of total AGI and paid 42.3 percent of all federal income taxes. In all, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. If you push that group of earners into overseas tax shelters by hitting them harder what would be the plan to make up those losses?

This is also a particularly true but uncomfortable statement - "Audits of the lowest-income taxpayers, particularly those claiming the EITC, resulted in higher amounts of recommended additional tax per audit hour compared to all income groups except for the highest-income taxpayers. IRS officials explained that EITC audits are primarily pre-refund audits and are conducted through correspondence, requiring less time. Also, lower-income audits tend to have a higher rate of change to taxes owed."