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Chances of Getting Audited by IRS Lowest in Years
By Stephen Ohlemacher, Associated Press
WASHINGTON (AP) -- As millions of Americans race to meet Tuesday's tax deadline, their chances of getting audited are lower than they have been in years.
Budget cuts and new responsibilities are straining the Internal Revenue Service's ability to police tax returns. This year, the IRS will have fewer agents auditing returns than at any time since at least the 1980s.
Taxpayer services are suffering, too, with millions of phone calls to the IRS going unanswered.
"We keep going after the people who look like the worst of the bad guys," IRS Commissioner John Koskinen said in an interview. "But there are going to be some people that we should catch, either in terms of collecting the revenue from them or prosecuting them, that we're not going to catch."
Better technology is helping to offset some budget cuts.
If you report making $40,000 in wages and your employer tells the IRS you made $50,000, the agency's computers probably will catch that. The same is true for investment income and many common deductions that are reported to the IRS by financial institutions.
But if you operate a business that deals in cash, with income or expenses that are not independently reported to the IRS, your chances of getting caught are lower than they have been in years.
Last year, the IRS audited less than 1 percent of all returns from individuals, the lowest rate since 2005. This year, Koskinen said, "The numbers will go down."
Koskinen was confirmed as IRS commissioner in December. He took over an agency under siege on several fronts.
Last year, the IRS acknowledged agents improperly singled out conservative groups for extra scrutiny when they applied for tax-exempt status from 2010 to 2012. The revelation has led to five ongoing investigations, including three by congressional committees, and outraged lawmakers who control the agency's budget.
The IRS also is implementing large parts of President Barack Obama's health law, including enforcing the mandate that most people get health insurance. Republicans in Congress abhor the law, putting another bull's-eye on the agency's back.
The animosity is reflected in the IRS budget, which has declined from $12.1 billion in 2010 to $11.3 billion in the current budget year.
Obama has proposed a 10 percent increase for next year; Republicans are balking.
Rep. Ander Crenshaw, R-Fla., chairman of the House subcommittee that oversees the IRS budget, called the request "both meaningless and pointless" because it exceeds spending caps already set by Congress.
Koskinen said he suspects some people think that if they cut funds to the IRS, the agency won't be able to implement the health law. They're wrong, he said.
The IRS is legally obligated to enforce the health law, Koskinen said. That means budget savings will have to be found elsewhere.
Koskinen said he can cut spending in three areas: enforcement, taxpayer services and technology. Technology upgrades can only be put off for so long, he said, so enforcement and taxpayer services are suffering.
Last year, only 61 percent of taxpayers calling the IRS for help got it. This year, Koskinen said he expects the numbers to be similar. To help free up operators, callers with complicated tax questions are directed to the agency's website.
"The problem with complicated questions is they take longer," Koskinen said.
Your chances of getting audited vary greatly, based on your income. The more you make, the more likely you are to get a letter from the IRS.
Only 0.9 percent of people making less than $200,000 were audited last year. That's the lowest rate since the IRS began publishing the statistic in 2006.
By contrast, 10.9 percent of people making $1 million or more were audited. That's the lowest rate since 2010.
Only 0.6 percent of business returns were audited, but the rate varied greatly depending on the size of the business. About 16 percent of corporations with more than $10 million in assets were audited.
Most people don't have much of an opportunity to cheat on their taxes, said Elizabeth Maresca, a former IRS lawyer who now teaches law at Fordham University.
Your employer probably reports your wages to the IRS, your bank reports interest income, your broker reports investment income and your lender reports the amount of interest you paid on your mortgage.
"Anybody who's an employee, who gets paid by an employer, has a limited ability to take risks on their tax returns," Maresca said. "I think people who own their own business or are self-employed have a much greater opportunity (to cheat), and I think the IRS knows that, too."
One flag for the IRS is when your deductions or expenses don't match your income, said Joseph Perry, the partner in charge of tax and business services at Marcum LLP, an accounting firm. For example, if you deduct $70,000 in real estate taxes and mortgage interest, but only report $100,000 in income.
"That would at least beg the question, how are you living?" Perry said.
Koskinen said the IRS could scrutinize more returns - and collect billions more in revenue - with more resources. The president's budget proposal says the IRS would collect an additional $6 for every $1 increase in the agency's enforcement budget.
Koskinen said he makes that argument all the time, but for some reason, it's not playing well in Congress.
"I say that and everybody shrugs and goes on about their business," Koskinen said. "I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not."
Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap
More Business News
Last Update on October 22, 2014 17:29 GMT
WASHINGTON (AP) -- U.S. consumer prices edged up slightly in September, with the overall increase held back by a third straight monthly decline in gasoline prices. The tiny gain was the latest evidence that inflation remains dormant.
The Labor Department says consumer prices rose 0.1 percent in September after having falling 0.2 percent in August. Core prices, which exclude volatile food and energy, also rose 0.1 percent after no gain in August.
Over the past 12 months, overall prices are up 1.7 percent and core prices are up a similar 1.7 percent. Both increases are well below the 2 percent target for inflation set by the Federal Reserve. The absence of inflationary pressures has allowed the central bank to keep interest rates at record lows to boost the economy.
WASHINGTON (AP) -- The government says millions of older Americans who rely on federal benefits will get a 1.7 percent increase in their monthly payments next year.
It's the third year in a row the increase will be less than 2 percent.
The annual cost-of-living adjustment affects payments for more than 70 million Social Security recipients, disabled veterans and federal retirees.
The government announced the increase Wednesday, when it released the latest measure of consumer prices. By law, the increase is based on inflation, which is well below historical averages so far this year.
Congress enacted automatic increases for Social Security beneficiaries in 1975. Until recently, the increases were rarely less than 2 percent.
AIR BAG RECALL
DETROIT (AP) -- The U.S. government is adding more than 3 million vehicles to a rare warning about faulty air bags that have the potential to kill or injure drivers or passengers in a crash.
The National Highway Traffic Safety Administration on Wednesday put out a new list of vehicles, increasing the number from 4.7 million to 7.8 million. The agency urged people to get their cars repaired if they're being recalled, especially in Florida and along the Gulf Coast.
The air bag inflators made by parts supplier Takata can rupture, causing metal fragments to fly out when the bags are inflated. Safety advocates say at least four people have died from the problem.
The warning covers many models from BMW, Chrysler, Ford, General Motors, Mazda, Honda, Mitsubishi, Nissan, Subaru and Toyota.
WASHINGTON (AP) -- Federal health officials are significantly expanding the breadth of vigilance for Ebola, saying that all travelers who come into the U.S. from Ebola-stricken West African nations will now be monitored for symptoms of illness for 21 days.
The director of the Centers for Disease Control and Prevention says the program will begin Monday and cover visitors as well as aid workers, journalists and other Americans returning from Liberia, Sierra Leone or Guinea.
The program will start in six states: New York, Pennsylvania, Maryland, Virginia, New Jersey and Georgia.
CDC Director Tom Frieden says state and local health officials will check daily for fever or other Ebola symptoms.
Passengers will get kits to help them track their temperature and will be told to inform health officials daily of their status.
J&J to spend up to $200M on Ebola vaccine program
NEW BRUNSWICK, N.J. (AP) -- Johnson & Johnson will start safety testing in early January on a vaccine combination that could protect people from a strain of the deadly Ebola virus.
The health care products maker says it has committed up to $200 million to speed up and expand production of a vaccine program being developed by its Janssen Pharmaceutical Companies.
J&J is developing the vaccine with the Danish biotech company Bavarian Nordic. It involves a regimen in which two vaccines are delivered two months apart. The combination provided complete protection in animals against a virus strain similar to the one causing the current outbreak in West Africa that has killed thousands of people.
The New Brunswick, New Jersey, company says it will also determine whether its vaccine protects against the version causing the outbreak.
MORTGAGE RISK RULES
WASHINGTON (AP) -- Federal regulators are proceeding with new rules that ease guidelines for banks selling mortgage securities and could mean fewer borrowers will need to make hefty down payments.
The Securities and Exchange Commission voted 3-2 Wednesday to adopt the rules, which six federal agencies have been working on since 2011. Three other agencies adopted the rules Tuesday, and the Federal Reserve has scheduled a vote for Wednesday afternoon.
The rules govern the amount of risk banks must take on when they package and sell mortgage securities in a multitrillion-dollar market. In the final rules, the regulators have dropped a key requirement: a 20-percent down payment from the borrower if a bank didn't hold at least 5 percent of the mortgage securities tied to those loans on its books.
MINI-OVERSTATED GAS MILEAGE
DETROIT (AP) -- The U.S. government has told BMW to reduce the gas mileage estimates on window stickers of four Mini Cooper models.
Testing by the Environmental Protection Agency lab in Ann Arbor, Michigan, discovered the overstated mileage.
The vehicles affected are the 2014 Mini Cooper three-door and Mini Cooper three-door S models with manual and automatic transmissions. BMW must cut the highway mileage by one-to-four miles per gallon depending on the model. Estimates for city driving and combined city and highway fuel economy also must be reduced.
The EPA says it audited the Mini gas mileage and came up with lower values than BMW, which makes the cars. It's the fourth time in the past two years that the EPA has found discrepancies in the gas mileage estimates provided by an automaker.
NEW YORK (AP) -- A new study confirms what many Internet users know all too well: Harassment is a common part of online life.
The report by the Pew Research Center found that nearly three-quarters of American adults who use the Internet have witnessed online harassment. Forty percent have experienced it themselves.
The types of harassment Pew asked about range from name-calling to physical threats, sexual harassment and stalking. Half of those who were harassed said they didn't know the person who had most recently attacked them.
Young adults -- people 18 to 29 -- were the most likely age group to see and undergo online harassment.
The survey was conducted between May 30 and June 30 among 3,217 respondents.
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