Every year the IRS publishes a Data Book with exactly how many returns it examined, by income level and by type of audit. The numbers for fiscal year 2025 are out, and they answer a question we hear from business owners in Torrance and across California more than almost any other: what are my actual chances of being audited? The honest answer is low for most people, higher than you might like at the top of the income scale, and easy to confuse with the mismatch notices that account for much of the IRS mail business owners actually receive.
The overall audit rate is well under 1%
For individual returns filed for tax years 2015 through 2023, the IRS had examined 0.36% of them by the end of fiscal year 2025, according to Table 3-1 of the 2025 IRS Data Book. That is roughly one return in 280. The prior edition reported 0.40% for tax years 2014 through 2022. The two figures cover different nine-year windows, so they are not a clean trend, but neither one is anywhere near the odds most people picture.
Two things to know about that number. First, it is cumulative: the IRS counts every audit it has opened on those returns so far, and audits of recent years are still being opened, so the rate for a given tax year keeps rising for about three years after filing. Second, it is an average across a very large population: about 161 million individual returns were filed for tax year 2021 alone. The published bands describe groups, not any one return, so your own odds depend on what is on yours.
Audit rates by income
The IRS sorts returns by total positive income, which is roughly your income before losses and deductions. The cleanest comparison is tax year 2021, the most recent year the IRS describes as outside the normal three-year audit window, so its numbers are close to final. Here is what Table 3-1 of the Data Book shows for tax year 2021 returns as of the end of fiscal 2025:
- $1 to $25,000: 0.5%
- $25,000 to $500,000: 0.2% in every band
- $500,000 to $1 million: 0.6%
- $1 million to $5 million: 0.9%
- $5 million to $10 million: 3.9%
- $10 million and up: 6.6%
- Returns claiming the earned income tax credit, at any income: 0.7%, which the IRS tracks as a separate group
Read that middle line again. As a group, returns with $200,000 to $500,000 of income were examined at the same two-in-a-thousand rate as returns around $40,000. Identical rounded percentages do not mean identical risk for any one filer, but the curve clearly only steepens past half a million, and it climbs fast past $5 million. Over the full nine-year span the IRS has examined 7.9% of returns reporting $10 million or more, so coverage at that level is substantially higher than anywhere else on the scale.
One oddity worth knowing: returns showing no positive income at all were examined at 1.8% for tax year 2021, far above the bands just over them. A return full of losses and nothing to offset them draws attention on its own.
Most audits are a letter, not a visit
In fiscal year 2025 the IRS closed 497,621 audits. Of those, 81.0% were correspondence audits, handled entirely by mail, and 19.0% were field audits with an examiner involved, per Table 3-2 of the Data Book. The year before, the mail share was 77.9%, so the shift toward letters is continuing.
A correspondence audit usually concerns one or two items: a credit, a deduction, or income the IRS believes was left off. It is resolved by sending documents, not by sitting across a desk. That is also why the dollar figures split the way they do: field audits produced $19.1 billion of recommended additional tax in fiscal 2025, correspondence audits $7.7 billion. The letters are the smaller matters.
An audit is not the same as a mismatch notice
The IRS selects returns for audit in several ways, and the agency itself says that selection does not always suggest a problem: some returns are picked by a statistical formula that compares them with similar returns, and some because a business partner or investor is already under examination. Alongside audits runs a separate, far more automated process. The IRS gathers the W-2s, 1099s and similar forms filed by employers, banks, brokerages and payment platforms, and its Automated Underreporter program matches them against the return you filed. When a number is missing or different, it sends a CP2000 notice, which the IRS describes in Topic 652 as a proposal to adjust your return, not a bill and not an audit. For many business owners, that notice is the IRS letter they actually receive.
Take an invented example. A consultant earns $18,000 from a client who issues a 1099-NEC, but the form goes to an old address and never makes it into the return. The IRS has the 1099. The return does not show it. Months later a CP2000 arrives proposing tax on the $18,000 plus interest and possible penalties, and the consultant has to show whether the income was already reported on another line, or agree and pay. Nothing about that was an audit of the business. It was one number the IRS had and the return did not.
What a California business owner should take from this
You cannot drive your audit odds to zero, and chasing that is a bad use of energy. What you can do is take the avoidable notices off the table. Before a return is filed, our team compares it against the wage and income transcript, the IRS record of the W-2s, 1099s and similar forms it has received, with one caution the IRS gives itself: that transcript can be incomplete while the return is being prepared, so it is a check, not the whole answer. The tax account transcript confirms the estimated payments that actually posted. Separate business and personal accounts mean a deposit never has to be explained twice. For the income bands where audits are a real possibility, documentation is built as decisions are made during the year, not reconstructed afterward.
A full audit is rare at most income levels, and the IRS's own numbers say so. A mismatch notice is common, and it is the one kind of IRS mail you can do something about before it is sent. If you have received a letter, or you want the return reconciled before it goes out, Schedule a tax planning consultation and we will go through it with you. Clean, reconciled numbers remain the simplest way to keep the mail boring.
