In its annual data books, the IRS presents audit rates for tax returns filed for each year over the previous decade. For example, in the 2022 Data Book, the tables shows audit rates thus far up to 2020 tax returns.

Audit data for the most recent years do not reflect the full number of examinations that will be done on tax returns filed for those years—the IRS has three years after a return is filed (either before or on the due date) to review, analyze, and resolve tax-related issues. When the statutory period (the statute of limitations) expires, the IRS typically can no longer assess or collect additional taxes.

In the 2022 Data Book, the most recent year for tax returns outside the statute of limitations is 2018: thus, the 2018 data includes all audits of 2018 tax returns (with limited exceptions).

Prior to 2020, the IRS measured audit rates differently. Audit rates were estimated by comparing the number of audits closed in a fiscal year to the number of returns filed during the prior calendar year. When the IRS switched to the new methodology, the agency recomputed audit rates beginning with 2010 tax returns. (Audit rates based on the original methodology can still be found on the IRS’s website up through 2019.)

How have Audit Rates Changed over Time?

The combination of deep cuts to the IRS budget and the departure of experienced examiners from the agency led to a substantial drop in audits. The audit rate of individual income tax returns fell by two-thirds between 2011 and 2018—from 0.9 percent of 2011 tax returns to 0.3 percent of 2018 returns. Among returns with positive income of $500,000 or less, the audit rate dropped from 0.7 percent to 0.3 percent. Those figures include the reduction in audits of earned income tax credit (EITC) claimants—which dropped from 1.8 percent of 2011 claimants to 0.9 percent of 2018 claimants.

The decline in audit rates was more marked for high-income individuals and corporations. About 7.2 percent of taxpayers with positive income above $1 million were audited on their 2011 returns; that figure dropped to 1.6 percent on 2018 returns. Among the largest corporations—those with over $20 billion of assets—the audit rate fell from 84.5 percent to 57.2 percent.

What’s Next for Audit Rates

Under the Inflation Reduction Act (IRA) of 2022, the IRS received a substantial boost to its budget—$80 billion on top of its annual appropriation—with 57 percent going to enforcement. Treasury Secretary Janet Yellen directed the IRS to focus its enforcement activities on high-income taxpayers, partnerships, and large corporations and to not increase audits above historical levels on small businesses and taxpayers with income below $400,000. In April 2023, IRS Commissioner Danny Werfel told Congress that the IRS would not increase the audit rate above the 2018 level for taxpayers with total positive incomes below $400,000.

Adopting “total positive income” for the audit threshold increases the risk of selection for a larger share of the wealthy population by more than most other measures of income, such as adjusted gross income. Total positive income is the sum of income before losses and deductions. In a simple example, a real estate developer with gross receipts of $1 million and losses of $601,000 would be in the pool of audit candidates. So would a business partner who makes $500,000 but claims deductions in excess of $100,000.

Besides widening the audit pool, using positive income as the trigger also reduces evasion opportunities. That real estate developer could not lower his audit risk by overstating losses. However, a taxpayer—say a self-employed lawyer who underreports her earnings but claims no losses—might evade scrutiny by the IRS.

In June 2023, Congress enacted the Fiscal Responsibility Act, which cut the IRA funding by $21.4 billion.

Other Measures of IRS’s Performance

Although observers often focus on trends in audit rates, that metric does not fully capture the effectiveness of the IRS’s compliance efforts. Other metrics are needed to evaluate the productivity of audits and the results of other IRS compliance efforts.

Audit rates alone do not tell the full story of the effectiveness of the IRS’s efforts to improve compliance. The quality of audits also matters. “No change” rates measure the percent of audits where no adjustments (plus or minus) are made to the taxpayer’s tax liabilities. No-change rates are typically higher for higher-income taxpayers and corporations than for lower- and middle-income taxpayers. For example, about 8 percent of audits of EITC claimants in 2011 were resolved without any change, whereas the no-change rate was 35 percent for audits of taxpayers with income above $10 million. Still, even that information is insufficient to judge the productivity of audits: High no-change rates may indicate that the IRS’s audit selection tools are flawed or that the IRS examiners are outgunned by wealthy taxpayers and their tax advisers. Conversely, low no-change rates may demonstrate that the IRS is selecting the right taxpayers to audit, or they may occur because lower-income taxpayers lack the resources to challenge the IRS successfully.

Moreover, the IRS’s enforcement actions are not restricted to audits. For example, Congress has authorized the IRS to deny the EITC if the taxpayer does not supply a valid Social Security number without initiating an audit. (Taxpayers maintain their rights to protest the denial, however.)

Updated January 2024