The IRS publishes examination coverage by income level each year in its Data Book. The figures show that the share of returns examined rises sharply at the highest income levels. This article summarizes what the most recent Data Book shows, how to read those figures, and what an examination of a high-income return can involve.
What the IRS Data Book Shows
Table 3-1 of the IRS Data Book for fiscal year 2025 reports, for each tax year from 2015 through 2023, how many individual returns were filed and how many had been examined, closed or still in process, as of September 30, 2025. For tax year 2021, which the Data Book describes as the most recent year outside the normal statute period, the reported coverage for individual returns was:
0.3 percent of all individual returns;
0.9 percent of returns reporting total positive income of $1 million to $5 million;
3.9 percent of returns reporting $5 million to $10 million; and
6.6 percent of returns reporting $10 million or more.
Earlier tax years show higher coverage at the top. For tax year 2019, the same table reports 11.5 percent coverage for returns with total positive income of $10 million or more, compared with 0.3 percent for all individual returns.
How to Read These Figures
The Data Book describes Table 3-1 as a snapshot. Some audits close within a year while others take several, so coverage for recent tax years appears low at first and increases as new examinations are opened. For tax year 2023, for example, the table shows 5.2 percent coverage for returns of $10 million or more as of September 30, 2025, a figure that can still rise.
The figures are averages for a group of returns in a given tax year. They are not predictions about any particular return, and they do not show why individual returns were selected.
The IRS’s own data shows that the highest-income returns are examined far more often than the average return. The more useful question for any particular taxpayer is whether the return and its supporting records will hold up if examined.
What an Examination Can Involve
The IRS states that audits begin with a letter, not a phone call, and may be conducted by mail or in person. High-income returns can include partnership, S corporation, trust, and investment activity, and the IRS may select returns that involve transactions with other taxpayers whose returns are under examination. The IRS Large Business and International division administers the Global High Wealth program, along with examinations of businesses with assets of $10 million or more.
The general assessment period is three years after the return was due or filed, whichever is later. It is six years when the return omits gross income exceeding 25 percent of the gross income reported, and there is no time limit for a fraudulent return (§6501(c)(1)). The IRS may ask a taxpayer to extend the period during an examination.
Penalties and Interest
Accuracy-related penalty: 20 percent of the portion of an underpayment attributable to negligence, a substantial understatement of income tax, or certain other categories (§6662). For individuals, an understatement is substantial if it exceeds the greater of 10 percent of the correct tax or $5,000. The rate rises to 40 percent for gross valuation misstatements and certain other categories.
Fraud penalty: 75 percent of the portion of an underpayment attributable to fraud (§6663).
Reasonable cause: no accuracy-related or fraud penalty applies to a portion of an underpayment for which the taxpayer shows reasonable cause and good faith, subject to statutory exceptions (§6664(c)).
Interest: the underpayment interest rate is the federal short-term rate plus 3 percentage points, determined each calendar quarter (§6621), and it generally runs from the original due date of the return.
Preparing for a Possible Examination
Practical steps include keeping complete records for at least as long as the assessment period remains open, documenting valuations and related-party transactions when they occur, reconciling the return with information returns and Schedules K-1, and considering disclosure on Form 8275 for positions that have a reasonable basis but could be challenged.
The Bottom Line
IRS data confirms that returns with very high income are examined at much higher rates than average, and that examination coverage for a tax year continues to grow for several years after filing. Careful documentation and well-supported positions are the best preparation.
Facing an IRS examination?
Tax attorney Cassra Minai, Esq. can review your situation in a confidential consultation.