Ep. 155 | A Look Into The 2024 IRS Data Book
Download MP3Welcome back to the teaching tax flow podcast, everybody. Episode 155 today. We are looking back in time technically, but not really because we're looking at the 2024 IRS data book. So if you're not sure what that is, we did one of these last year, so shame on you for missing that. But we're looking at that I should say looking at that.
John Tripolsky:We're looking at the one that relates to tax year 2024. But before we do that, as always, let's take a brief moment and thank our episode sponsor.
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John Tripolsky:Alright, everybody. We are back here again on the podcast. This time, we're not talking about necessarily strategies, implementation. We're not really talking about all that today, but we are gonna give you the summary. And I say summary is a very, very, very condensed version of the 94 pages of very, very, very, very, very number heavy chart graph, everything heavy IRS data book for tax year 2024.
John Tripolsky:So, of course, Chris Pacquero, my cohost here, read every single word of this document. Didn't you, Chris?
Chris Picciurro, CPA:Oh, of course.
John Tripolsky:And you remember it all too, probably. That's the that's the impressive part. Right?
Chris Picciurro, CPA:Oh, man. These the this data book is very valuable, though. And it it's funny because in honor, September 30 is actually the last day of the fiscal year end for our federal government. So we thought it'd be appropriate. We've been wanting we did this, for the 2023 data book.
Chris Picciurro, CPA:We're looking at the 2024 data book. We wanna do it in honor of September 30 here. It was very well received last year, and it does tie in a tax planning and strategy because one of the three laws of tax planning, tax agencies are your involuntary business partner. Well, don't you want to know what your business partner is up to? What are they looking at?
Chris Picciurro, CPA:What are they auditing? Where are their revenues coming from? And this is really fascinating. And and I I think that this will spur some conversation in our private Facebook group, defeatingtaxes.com, because, again, you you you know, you don't wanna call them the enemy, but there's that saying, you know, keep your friends close and your enemies closer. So let's take a look at what's going on.
John Tripolsky:It's kinda like
Chris Picciurro, CPA:And this is all public information, I should say. Yeah. The it's called publication 55 b. It's issued in the very beginning of summertime. But, again, we wanted to hold on to this one, to as close to the fiscal year end as possible.
John Tripolsky:I almost made a joke to Chris about it being 94 pages and be like, I know you printed off this whole thing and read through it because you just got back from a a trip to Minnesota. You were out there with the NATP, National Association of Tax Professionals. Yeah. Professionals out there. They had a chapter event, so I know you had some some transit time.
Chris Picciurro, CPA:So Absolutely. I had a an honor of traveling last week to, work with the, teach a sixteen hour continuing education course to over two days. Don't worry. We didn't squeeze it into one. An awesome chapter of an NATP up in Minnesota.
Chris Picciurro, CPA:About 70 people attended. A lot of interaction, a lot of lively conversation. I finally had my voice back, so that's a good thing. My wife's upset.
John Tripolsky:Is it is it a good thing, though? I don't know.
Chris Picciurro, CPA:Yeah. It was good when I had that voice. It's coming back. It was nice when that voice was gone. So, it was an honor to go go, speak with them and present and, you know, they, it was it was I feel well, like, well received, and I truly enjoyed it.
Chris Picciurro, CPA:So we're I was up in the Twin Cities. I was expecting it was gonna be chilly, but it actually was pretty warm. Unseasonably warm. Michigan weather.
John Tripolsky:You know, you never know what to expect. At least with the data book here, we kinda know what to expect with the IRS. Right? And that's something too, I think, you know, we've touched on briefly in in other podcasts and all that. If this is somebody's first time listening to this, you know, let me kinda preface this with something that I was shocked of years back when Chris kinda enlightened me to this is, you know, you're not you're not always you don't have to get a bill from the IRS, and you're stuck with it.
John Tripolsky:Right? You can take ownership of that through tax planning, and that's a little bit what we're gonna talk about. Chris, I like how you did mention that. It is part of this because this is showing, you know, where a lot of their resources are going as far as for, like, an organization, right, and their time and and everything. Absolutely.
John Tripolsky:Cool stuff in here.
Chris Picciurro, CPA:Well, let's talk yeah. Let's jump into we're gonna definitely touch on the audit percentages and what we think is getting examined more. Let's talk about tax collections in general. By over $5,000,000,000,000 of gross tax was collected, and 54.2 of that above. So over half of that is coming from individual income tax.
Chris Picciurro, CPA:So tax US taxpayers like yourself, myself, people listening, about 32% or a third, 32.6% came from employment taxes. So remember, if you're an employee, you are paying in employment taxes, Social Security, Medicare, and then the employer is matching that. But if you're self employed, you're paying the self employment tax. So that's about a third. Then business income taxes was only about 11%.
Chris Picciurro, CPA:So remember, we have a lot of flow through entities, s corps, partnership returns, single member LLCs, that that tax is paid on the individual or or employment level. And then the remaining amount, which is a very small amount, is or would be a state excise tax and gift taxes. So that that's where we're that's less than well, less than 10%. So by far, over 50% of the tax paid are individuals. Another third would be employment taxes, which is partially individuals.
Chris Picciurro, CPA:Right. The IRS processed over 266,000,000 tax returns last year. A 161 a million of those are individuals. So, that means that there's a 105,000,000 tax returns that are the IRS processed that are not form 10 forties. And the point is your when we think about taxes, lot times we think about the ten forty.
Chris Picciurro, CPA:Right? But remember, that's 160 out of the 266 ish million returns that were filed. There are a lot of other tax returns getting filed with IRS.
John Tripolsky:And these are I mean, I wouldn't say these are shocking numbers to me personally this time because last year we looked at this, and I think my jaw just continually kept dropping at the stuff that was in this. Because really, you don't I mean, personally, again, I know there's a lot of it. I don't really I've never seen anything until the one we did last year that had all this on write sheet. Right? And and no wonder that the I wouldn't say the push.
John Tripolsky:It's the decision to go almost solely e file is there. We go mean, we're talking 200 something million returns. I mean, we could get really nerdy one day and break down how many employees they have that are processing these and how many you know, how much time they have per return to do this and and all kinds of stuff. Mhmm. We have better things to do with our days.
John Tripolsky:Right?
Chris Picciurro, CPA:Well, think about this. When I first started in this business, we weren't efiling tax returns. And now it's mandated for preparers to Well, you
John Tripolsky:guys were making your own paper back then. Wasn't that called paper?
Chris Picciurro, CPA:We cutting up trees in the back. We had a whole mill we set up. Smelled great. It smelled like sulfur. You ever tried
John Tripolsky:to go
Chris Picciurro, CPA:to paper mill town?
John Tripolsky:Yeah. I used to live by one. Remember in South Carolina? The wind blows the wrong way. You're like, woah.
John Tripolsky:What is this? Glue.
Chris Picciurro, CPA:Oh, for sure. Oh gosh. I'm trying to remember that it was North of Mount Pleasant when I saw it. It was between Myrtle Beach, Georgetown. Right?
Chris Picciurro, CPA:Isn't it Georgetown?
John Tripolsky:Yeah. I think there's one. Yeah. I forget the name of the company, but Georgetown and then North Charleston, I think there was another one too. But, yeah, they were, smelled a little pulpy.
Chris Picciurro, CPA:It was pulpy. However, you know
John Tripolsky:It was fun. Can win everything.
Chris Picciurro, CPA:At least you didn't live there. Right. So that's a good thing. So 90 over 93% of tax returns are filed electronically, which is pretty crazy. Ninety three percent.
Chris Picciurro, CPA:The IRS has been under high scrutiny for their lack of service. Now they are losing people, but they did answer 20,000,000 live phone calls last year.
John Tripolsky:That's a lot.
Chris Picciurro, CPA:20,000,000 live phone. And the irs.g0v, which is the IRS's website, had 690,000,000 visits, With over half of them being where's my refund? Right? 383,000,000 of the six ninety are just people wondering where their refund is. Fascinating.
Chris Picciurro, CPA:I'm sure they were they're gonna we're gonna have a they're maybe they could put some ads on there or something to
John Tripolsky:catch up Charlie. About that too. You know, that that being the the number one question that's going in there. I think me and you have done a better job promoting that the IRS actually has a mobile app. Mhmm.
John Tripolsky:On at least I know on iPhone. We've mentioned it a couple of times about this. I've never actually seen or heard anything from the IRS saying that, believe it or not. So think about how many calls they may be well, let's be honest. Yeah.
John Tripolsky:I probably wouldn't call them anyways, but they, you know, they gotta do a little bit better job of that. But we're happy to help out if they wanna reach out. You know, we can get mad. Mhmm.
Chris Picciurro, CPA:So let's talk about enforcement because I there are tons of information in this data book, but that what people really wanna know is what's going on with enforcement, meaning specifically audits, examinations, right, of taxpayers. So the IRS is currently using we know that their their staff their their funding and their staff and their team count is down. Right? And their their population of of, employees is probably more mature aged if I had to guess. With IRS You're probably right.
Chris Picciurro, CPA:Continuing to use data analytics data analytics, easy for me to say, AI and new technology to enhance their enforcement capabilities is what you have we gotta remember is a lot of these forms that you receive are sent to the IRS as well. Could be your mortgage interest statement. Could be your w two, bank interest, a ten ninety nine of one way, shape, or form. So the IRS is doing its best to quickly as possible using technology and AI and data analytics, match what's on what's called your tax transcript with which what with what is actually filed. Now not everything.
Chris Picciurro, CPA:So everything on your tax transcript, you should report on your tax return, but there are a lot of things on your tax return that are not on your tax transcript, and that kinda gets gets challenging when when it comes to IRS enforcement.
John Tripolsky:And I think just on the tech side too, I can think of an example which they're probably gonna get a lot better at, right, as, like, a scenario where, say, there's two people doing business together, say, your friends, whatever. Somebody pays you what is called, hey. I'm gonna give this guy $1,500 for their service and cash. They they document it. They account for it on the outgoing side.
John Tripolsky:But maybe, you know, Joe over here is like, oh, I got cash. I don't have to say anything about it in my business. So I'm sure they're gonna do a lot better job of matching that it's correct on both sides of the fence or at least be able to get flag it easier. Right? So to alleviate some of that, the manual work.
Chris Picciurro, CPA:And these $10.90 nines are are need to be efiled now because before you'd mail them in, it was it was in w twos or get mailed in, and it's it's just come a long way. You know? Yeah.
John Tripolsky:It it do have anything to a hit.
Chris Picciurro, CPA:I'm sorry?
John Tripolsky:The postal service is gonna take a hit.
Chris Picciurro, CPA:Oh, they have already. I mean, I was talking to actually,
John Tripolsky:one
Chris Picciurro, CPA:of the attendees from the Minnesota event last week, was so nice to take me to the airport because she lived near there. And she pointed out, hey. There's a post office in the airport before, but they they you know, it's like a third of the size. And we are reminiscing. I was thinking, I remember when I first started in this business, I was right in the shift to efiling.
Chris Picciurro, CPA:So the early two thousands where post offices would have the news would be there, of course. And then if all the workers out there stamping tax returns before midnight on the fifteenth, your birthday, obviously, and putting them into, the postal service and thinking, gosh. That doesn't happen anymore.
John Tripolsky:Right. It'd be like tax day, quote, unquote, air quotes. Again, tax day. Tax day sponsored by Band Aid for the paper cuts for those poor people.
Chris Picciurro, CPA:Oh, man.
John Tripolsky:Times have changed.
Chris Picciurro, CPA:Talk about these audits. Alright? We a friendlier way to say is examination. But IRS audited 605,000 individual tax returns last year. 600 now that sounds like a lot, but that really only made up point 38% of all the filed returns.
Chris Picciurro, CPA:Pretty
John Tripolsky:interesting. And I and I think that's the important number there is the percentage. Right? Because we get asked that a lot. I feel like at every conference we go to, real estate ones especially, you know, people are like, oh, is that gonna increase my audit risk?
John Tripolsky:Like, that's the that's the infamous question. Right? And I I believe, like, your response always is, we don't really know what that is. I mean, there's certain things you can do that are, like, almost guaranteed red flags. But, you know, by claiming home office does not automatically increase
Chris Picciurro, CPA:Correct.
John Tripolsky:Audit risk. Correct?
Chris Picciurro, CPA:Correct. I mean
John Tripolsky:I want that
Chris Picciurro, CPA:to go on record,
John Tripolsky:by the way. That that's the second thing that I've pulled out in reference. Right. Almost a substantial
Chris Picciurro, CPA:depreciation recapture. So the additional tax recommended from these audits. Right? And and we're not saying that the tax is actually due. If you are audited, you have a right to appeal it.
Chris Picciurro, CPA:You have a right to talk through it, but the IRS has additional tax recommended on that was 605,000 audits of individual returns was $7,100,000,000. That's an average of about 11,700 of additional tax recommended per audit. Now I'm sure there are people out there that got assessed millions and millions of dollars. There's people that got assessed a couple $100, but it's just interesting. So less than a third percent of filed returns on the individual are actually examined with the average of about $11,000 assessed.
Chris Picciurro, CPA:I kinda you know? So that that's interesting. Now let's talk about business returns. Right? Business returns, 38,057 returns were examined.
Chris Picciurro, CPA:Those are s corpse, c corps, etcetera. $15,000,000,000 of taxes recommended. Right? So one twentieth approximately of the returns examined, but double the tax assessed recommended. The average is about $400,000 per business.
Chris Picciurro, CPA:Now it could be skewed. Right? You could have one corp that owes billions and bill you know, a billion dollars itself. But I'm just saying, you know, as we look at that. And then, you know, partnership returns, only 13,200 approximately partnership returns were examined.
Chris Picciurro, CPA:That's form ten sixty five. That's a very low, that's less than onetenth of 1% of those returns. So if you think about pure audit risk for an LLC, we're not suggesting you are a multi member LLC. But if you a multi member LLC has a lower auto risk than a schedule c, meaning a per sole proprietor.
John Tripolsky:And here's kind of a loaded question for you and and more of an your opinion on it. So those partnerships, right, we're seeing a low a low number there. Right? Mhmm. Is there a reason why that may be?
John Tripolsky:Like, are they kind of forced to keep their stuff more in their books more in order or something? Right.
Chris Picciurro, CPA:I mean, yeah, partnerships, the vast majority should be reporting a balance sheet. They're typically gonna have more sophisticated accounting, due and and they're they're gonna issue k ones, and and partnerships don't pay federal tax. However, if partnership if there's an adjustment to the partnership return, then individuals might have tax on that.
John Tripolsky:So I wonder if these examiners too have, like you remember the Staples easy button where you, like, smack it and it says something? I wonder if they have something, like, on their desk, and it's like a gotcha button when they're getting, bam. You know, I just got an
Chris Picciurro, CPA:extra You know what?
John Tripolsky:I don't billion dollars.
Chris Picciurro, CPA:So My my impression is and I don't do a ton of representation work, but my impression is is that they are just like everyone. They're trying to move cases along their desk. They get one slapped on their desk. It could be targeted. It could be an analytical thing.
Chris Picciurro, CPA:Could It be just a random. Sometimes IRS says, hey. We want us to have a sample size. So we're just gonna go audit a random 100 returns with one thing on it just to see if we see trends. And they're looking.
Chris Picciurro, CPA:And if they don't see what some bad stuff, then they stop looking, and they might assess. If they start seeing really bad stuff, so they keep they dig deeper. So what I want you to think about is when you get audited by the IRS, what happens is you just got pulled over going five maybe five over in a in a in now if the IRS comes to your car, you don't have your seat belt on, you've got a beer open, drink you're drinking, you've got illicit drugs in the back, you've got stolen weapons, You've got you know, you have a warrant out for your arrest. It can go bad quickly. So that's a so you you just have to work with them and give them what they need.
John Tripolsky:That's a great you know, I think you pulled out a couple good analogies today. I've had Once in a while. An hour. We're talking before. That that again is a really, really good one.
John Tripolsky:And I think the importance of you saying in that way is is, you know, even though we joke about the IRS and the gotcha bot. Like, we don't wanna was it, like, villainize or vill vilify, whatever that word is? Like, they're not bad people out to get you. Right? A lot of it, like you mentioned, is kind of a systems that they're working through trying to find things.
John Tripolsky:Because otherwise, how would they find it? Right? Like, they might find an area code that people are claiming, I don't know, home office deductions, and the average house is a thousand square feet, and they're all claiming 15. Some crazy like that. Right?
John Tripolsky:Like, I'm sure that's how they find it. So, yeah, that was a great example. Like, you're the only reason you got pulled over is because they're looking for something potentially We're
Chris Picciurro, CPA:not saying to beat seat belt rule. And then all of a sudden, it it gets out. So let's talk about examination rates by income. The the data book gives us some indication of an estimated audit rate for 2024, and some of this is surprising. So the less than $25,000 income folks are at about a 1% audit audit rate, which is five times more than people that make 25,000 to a 100,000 10 times more than people that make a 100,000 to $500,000.
Chris Picciurro, CPA:Like, why would the un less than $225,000 people, I'm gonna put this little caveat in there, that has an earned income tax credit. So there's a lot of fraud, unfortunately, in the earned income tax credit world. And for that reason, about 1% of those are are examined. About one out of every you know, point 2%. So if you think about one out of every, you know, what, one out of every 500 returns are examined at the two 25,000 to a 100,000, and one out of about every thousand returns, the 100 to five hundred Five hundred thousand to a million, probably about point 6%, and then a million to $5,000,000, about 1%.
Chris Picciurro, CPA:And then if you're over $5,000,000 of income, you're it the it's it's about, you know, somewhere between 510%. We don't know the exact number, but that's estimate.
John Tripolsky:Right. And then and looking at that all spread out too, we'll put the link to this, PDF to for this year in the show notes here. And if it's still out there, we'll put the one for last year too if anybody wants to reference it. But, mean, really, makes sense when you look at that as a comparison table. Right?
John Tripolsky:Once you get over five was it 5,000,000 plus? Was that last one where where it's kind of a targeted number?
Chris Picciurro, CPA:Of income.
John Tripolsky:Yes. It it makes sense. Right? Because that's those get very complex, I'm sure. And there's a lot of things.
John Tripolsky:Not saying things are done maliciously every time, but things can slip. You know? It is what it is. And it I mean, I don't I I give them credit for for going that route, I guess, really.
Chris Picciurro, CPA:What I'm gonna wrap up by talking through audit, because when we think about audits, many of us think, like, you're gonna get some random person knocking on your door. Right? You so the IRS has what they call a correspondence audits. That means they mail you a letter. And and if you get that, we have content about what the heck you should be doing.
Chris Picciurro, CPA:You should definitely talk to your tax professional immediately if you get that letter. And, typically, it's targeting one item. Right? And or you could they have what they call field audits or in person audits. Now that doesn't mean that they're going to your house.
Chris Picciurro, CPA:Those audits are typically gonna be conducted face to face, and they're typically gonna be in general at at an IRS office. You can absolutely hire an enrolled agent, a CPA, or an attorney to represent you in on your behalf, and that's typically what happens. The correspondence audits are about 85 to 90% of all the audits. And then with the the in person audits or field audits, only about 10 to 15%. And the most of the correspondence audits are focusing on the lower income taxpayers when they're really looking at that earned income tax credit, returns with, like, refundable credits, and just math and and verification and documentation errors or or they might be auditing.
Chris Picciurro, CPA:We've had clients. They would be were very generous one year, and the IRS audited just their charitable contribution because it you know, maybe they inherited a bunch of money that wasn't taxable, they decided to give a lot to charity. Well, the IRS doesn't know that. So they might have taken a charitable contribution deduction, and they might send them a letter auditing just that charitable contribution. Contribution.
Chris Picciurro, CPA:The field audits are gonna be those higher income business owners, more complex businesses, international issues, and large schedule c or self employed clients. So those are the the trends that we're seeing. And and, obviously, when you you know, if you're a professional tax preparer, we we prepare returns assuming they're gonna get audited. We have to be organized. We have to have work papers because it could be two, three years down the road where the client gets a letter, and, shoot, we could barely figure out what we did a week ago.
John Tripolsky:Right. Right. And that's and that comes down to two. I know we've we've spoken it many, many times, you know, when it when it comes to really choosing a tax prepare tax professional. Right?
John Tripolsky:Find somebody to get along with. I mean, nothing nothing would be worse than, hey. I got this notice of an audit regardless what kind it is. And, you know, say you don't get along your buttheads with your with your tax preparer tax for all the time, and they just look you and say, I told you so. And people be
Chris Picciurro, CPA:like, well
John Tripolsky:well, like, what do I do? Like, you you wanna be with somebody that gets you. And the field audits, those are things I know we talked about. We I mean, this is one of the earlier podcasts we did is I think we referred to the IRS as Darth Vader on that one. But it was the the biggest mistake I think that that I still take from that is that if you get one of those in the mail, don't, you know, open the damn letter.
John Tripolsky:I think it is, like, verbatim of what what our guest Andrew Pulis was saying. Right? Like, don't let it sit there, and then, oh, crap. This was nine months ago. I'm avoiding it.
John Tripolsky:I'm procrastinating because I think it's terrible news. It could be something as simple as, like you said. What is it? Like, a a c p
Chris Picciurro, CPA:CP 2,000 is your most common notice. Absolutely.
John Tripolsky:On record, sir, that's two things that I know
Chris Picciurro, CPA:Right.
John Tripolsky:In your world. Yeah. Yeah. Anyways.
Chris Picciurro, CPA:Hey. You know what? Walk off on on a high note like George Costanza.
John Tripolsky:I'm done, man. I'm gonna I'm gonna do the moonwalk out of my office here in a minute, but thanks for running through these with us, man. I know Yeah. You know, we're both kinda looking at this data book as we're talking through this. Lots of stuff in there.
John Tripolsky:Honestly, best recommendation I give for somebody on this to make your life a lot easier, don't print it out. You will kill a small tree, literally 94 pages. Not to mention, it'll kill your printer. But open it as a PDF. Search in it any keywords you want.
John Tripolsky:There's a table of contents in there. It's actually pretty interesting. Like, even if you're not going into it in the fact of nerding out, there's some pretty interesting stuff in there. You might find yourself digging in deeper than you wanted to. But on this one, I mean, I look forward as always to our next show, but I look forward to looking at this next year and kinda seeing how things roll out.
John Tripolsky:But, again, links in the show notes. Check that out. Two other things for you really quick. One, anybody that's listening or watching this, don't be lazy. Subscribe to YouTube.
John Tripolsky:Subscribe to the podcast. That's one thing. Second, get on defeatingtaxes.com. So that's our private Facebook group, for teaching tax folk. We post stuff in there, but it's mostly driven by community members, tons of tax pros, taxpayers, collection of everybody around the country.
John Tripolsky:Get on there and just let us know what you think. Maybe we'll post a couple questions in there, get things started up. I'm kinda curious what people that aren't in this all the time think of this data book, like if they're surprised or how it goes. So, yeah, don't be shy. Post something that you can post anonymously if you want to, but check it out.
John Tripolsky:We do have a great episode coming up as we always say. Great guest next week as well. Somebody that has a has a pretty good insight on a couple of things, but you have to wait to find out. So we'll see everybody back here again next week on the teaching tax flow podcast. Different date, same day of the week, completely different topic.
John Tripolsky:Have a great week, everybody.
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