Each year, the IRS examines tax returns to determine if filers accurately reported income and expenses and meet eligibility requirements for any claimed tax credits or deductions. 

The IRS selects tax returns to be audited based on rules and algorithms, information from third parties, possible involvement in suspicious transactions, or connections to other taxpayers selected for examination.

Audits are among various IRS enforcement practices that combat the underreporting of income or overstatement of deductions and tax credits and ultimately reduce the country’s $600 billion tax gap, or the difference between true tax liability in a given tax year and the amount paid on time. 

Audit rates vary by type of tax return and income level

The audit rate, or the share of total tax returns examined, for most types of tax returns ranged between 0.1 percent and 0.4 percent in tax year 2021, the year with the most complete available data (Figure 1). Estate tax returns had a significantly higher audit rate of 2.6 percent, which may in part reflect the somewhat small number of estates subject to taxation each year.

Over 161 million individual income tax returns were filed for tax year 2021 (three in four total tax returns filed that year) with an audit rate of 0.3 percent. The IRS audited individual returns with incomes at the higher end of the income distribution at significantly higher rates than other returns (Figure 2). For example, tax returns with total positive income exceeding $10 million had an audit rate of about 7 percent, compared with under 1 percent for those between $1 and $100,000. 

Returns with no positive income were audited at a rate of around 2 percent. Those filers may have had no taxable income that year or had small business losses that exceeded revenues.

Other factors influence an audit’s likelihood

Tax returns claiming the Earned Income Tax Credit (EITC), typically filed by those with lower incomes, were audited at a higher rate of 0.7 percent in comparison to the rate of 0.3 percent for all taxpayers with incomes from $1 to $75,000.

Further, a 2023 Stanford University study in collaboration with US Treasury revealed that Black taxpayers were about three times more likely to be audited than everyone else, with relatively higher audit rates at all income levels. This racial disparity may reflect unpublished IRS audit algorithms. While Black taxpayers made up 21 percent of EITC claimants, they were the subject of 43 percent of EITC audits.

Audit rates have been falling 

Over time, IRS capacity to audit has been constrained due to to staffing reductions and funding cuts. Audit rates have also fallen in recent decades. Audits of taxpayers with high incomes, who tend to have more complex tax returns requiring resource-intensive audits, have decreased most significantly. 

Understanding IRS enforcement practices and budget resources can help ensure that the IRS can fill the tax gap, administer the tax system fairly, and build taxpayer confidence in the system.

This Fiscal Fact is authored by Terrence “Olu” Rouse, the 2026 Peter G. Peterson Foundation Fiscal Intern in the Urban-Brookings Tax Policy Center.