Sigh of Relief: IRS Audit Rates Lower than Ever

Gisele Bundchen is feeling the wrath of the Internal Revenue Service after being placed at the top of the Forbes Supermodel Rich List for the seventh year in a row. The supermodel says she is being audited after reportedly raking in $42 million between June 2012 and June 2013.

But most taxpayers won’t be scrutinized by the IRS like the world-famous beauty. In fact, a new report from the Associated Press says the chances of being audited are lower right now than they have been in years.

Bill Smith, managing director in the CBIZ MHM National Tax Office, says budget cuts have left the IRS with fewer agents. The IRS budget fell to $11.3 billion this year from $12.1 billion in 2010.

“Congress cut the IRS’ budget by about $800 million, and they also have new obligations that they didn’t have before,” Smith says. “A big one is that much of the health-care reform law is going into effect right now, and is being administered by the IRS.”

The agency is tasked with enforcing the individual mandate provision of the Affordable Care Act, which requires every individual in the country have insurance or face a fine of $95 a year or 1% of their annual income.

The AP reports that last year, the IRS audited less than 1% of all returns from individuals, which was the lowest rate since 2005. And in the AP interview, IRS Commissioner John Koskinen says that number will be even smaller this year.

“One of the areas that has been hit hard is exams,” Smith says. “Congress is asking [the IRS] to do more with less, and they have fewer resources to collect for exams.”

This combination is making the average taxpayer’s chances of being audited quite low, he says.

“If you make less than $1 million, your chances of being audited are still under 3%, so the vast majority of Americans aren’t having a problem in that area. Joe Taxpayer in the street, by and large, he isn’t getting audited.”