2021 Data Book Highlights the IRS’ Tax Enforcement Priorities

The Internal Revenue Service (IRS) recently released its 2021 Data Book. As the IRS explains, the Data Book “is published annually . . . and provides data on collecting the revenue, issuing refunds, enforcing the law, assisting the taxpayer, and the budget and workforce.” For taxpayers, the most important aspects of the IRS’ Data Book are its statistics on collections and enforcement. Here are some of the highlights from New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:

Gross Collections Continue to Rise

With the exception of 2020, the IRS’ gross collections have increased every year since 2012. For 2021, the IRS reports the sharpest increase on record. While gross collections dipped below $3.5 trillion in 2020, they increased to more than $4 trillion in 2021.

More than half of the IRS’ cross collections involve individual income taxes. Employment, estate, gift and excise taxes make up the second-largest portion, followed by business income taxes. While individuals (and estates and trusts) paid close to $2.5 trillion in taxes in 2021, businesses paid only about 20 percent of this amount.

Businesses are Nearly Twice As Likely as Individuals to Face IRS Audits

According to the 2021 Data Book, the IRS has examined 0.55 percent of individual tax returns filed between 2011 and 2019, compared with 0.92 percent of corporate returns filed during this same period. While both of these percentages are fairly low, they nonetheless indicate that businesses are almost twice as likely as individuals to get audited by the IRS.

High-Income Taxpayers are Far More Likely to Get Audited

While the IRS audits just 0.55 percent of individual taxpayers overall, it has audited 8.9 percent of taxpayers reporting income greater than $10 million. In other words, high-income taxpayers are far more likely to face IRS audits than those who earn less than $10 million annually.

The Average IRS Tax Audit Results in More Than $36,000 in Additional Tax Liability

The IRS reports that it closed 738,959 tax return audits in 2021. These audits resulted in “nearly $26.8 billion in recommended additional tax.” This means that the average IRS tax audit results in more than $36,000 in additional liability for the taxpayer. Just over three quarters (78.4 percent) of these were correspondence audits, with 21.6 percent of all IRS audits in 2021 being conducted in the field.

Less Than Two Percent of Taxpayers Challenge Unfavorable IRS Audit Determinations

Just 1.8 percent of taxpayers who received unfavorable audit determinations in 2021 disputed their audit results with the IRS. Notably, however, these audits accounted for approximately 42 percent of the IRS’ recommended additional tax liability.

Contact New Jersey Tax Lawyer Kevin E. Thorn

If you are facing an IRS audit, investigation or other enforcement action involving your (or your company’s) federal tax liability, New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, can help. To schedule a confidential consultation as soon as possible, call 201-842-7696, email ket@thornlawgroup.com or request an appointment online now.