When time to file federal and state income taxes approaches, a common question that arises is: What are my chances of being audited by the IRS or my state tax authority? While the answer to this question is not simple, there are several factors that can increase the odds of facing a tax audit. While we control many of these factors such as being sure to complete all paperwork and include all required documentation when filing taxes, there are some factors that can be a little more difficult to control.
In an article on Accountingtoday.com, California, Colorado and Nevada had the most users of taxauditdefense.com who faced IRS tax audits in 2014, while New York, Massachusetts, and Alabama faced the most state tax audits. Included in the top ten for most IRS tax audits was also Vermont, Missouri, New Mexico, Arizona, Massachusetts, Florida, and Rhode Island. Rounding out the top ten states with the most tax audits were Delaware, Michigan, Mississippi, Arkansas, Oregon, Montana, and Maine.
While being number one is a great thing for sports fans, reading these statistics may have a tendency to cause a California taxpayer to cringe. However, this statistic should not worry you since California is also the state where the most income tax returns are filed with the IRS. According to the IRS of 240,075,782 total returns filed for fiscal year 2013, 28,590,971 tax returns were filed in California. This is a significantly greater amount of returns than any other state. For example, in Ohio 8,478,748 tax returns were filed, North Carolina had 6,726,971 returns filed, Indiana had only 4,629,917 returns filed, Tennessee had 4,301,190 returns filed, and Kentucky only had 2,874,239 returns filed. This case of less returns filed leading to less tax audits doesn’t hold true in the case of Colorado. While taxauditdefense reported Colorado as the state facing the second most tax audits, Colorado only had 4,367,301 returns filed, and Nevada which was reported as third only had 2,064,632 returns filed.
It seems that in some instances, more returns can certainly lead to more audits, however as proven by the listed statistics some states do seem to face more tax audits. Ultimately, it is most important to focus on the factors that you can control when filing your taxes with both the IRS and state taxation authorities.