They've been called financial root canals and autopsies without the benefit of death; even mighty Al Capone was brought down by one. But for today's taxpayers, the fear of facing an audit may be unwarranted.

Less than 1 in 200 taxpayers was the target of an audit last year, continuing a downward trend that accelerated after congressional hearings in 1997 and 1998 put a spotlight on alleged IRS abuses. The agency diverted enforcement personnel to customer service and backed away from some tough stands because of legislation that bolstered taxpayers' rights. Property seizures fell, from 10,090 in 1997 to 174 in 2000, while levies and liens dropped 88 percent. Last year, about 1 in 5 people audited escaped without paying anything.

Less fear. The audit rate shrinks to 1 in 400 if you exclude a special IRS effort to catch cheaters who claim the earned-income tax credit intended for low-income workers. Upper-income taxpayers face a greater chance of being probed, but even so, barely 1 in 100 filers with $100,000 or more in income fell prey to an exam last year--less than a third the rate in 1996. Overall, some 618,000 individuals were audited last year, compared with 1.1 million in 1999. Not surprisingly, "people are less fearful," explains Edward Mendlowitz, a New York CPA. "Clients don't bring up the chance of an audit as much as they used to."

But audits may have hit bottom. IRS officials are asking for money to beef up their enforcement staff, which has fallen by about 20 percent since 1995. This year's budget allows adding 2,036 employees for auditing, collection, and customer service, and IRS Commissioner Charles Rossotti is pushing for more. Many accountants and lawyers agree that audits have fallen too far. "If they let auditing stay at one half of a percent, it will encourage every cheat to play the odds against being audited," says New York accountant Martin Kaplan, author of What the IRS Doesn't Want You to Know, a guide to saving tax and fending off the tax police. Marvin Michelman, a former IRS audit analyst and now a director at the accounting firm Deloitte & Touche, says that "the risk of an audit is as important as an audit itself in keeping taxpayers reasonable."

Even with the lapse in audits, the IRS has other ways to keep tabs on taxpayers. The agency regularly scans electronic copies of the 1099s and W-2s that you get every year from banks, mutual funds, and others reporting dividends, interest, and other income you've earned. It sent out some 1.4 million notices last year to people who appear not to have reported everything--routine enforcement that doesn't qualify as an audit. The IRS also gets reports from lenders on mortgage interest you pay and from brokers on securities that you sell.

Conventional audits, though, remain the main weapon for scrutinizing questionable deductions and analyzing a return. "Fewer people are being audited, but the targets of audits are being more carefully chosen," warns Jeffrey Kelson, a tax partner at the national accounting firm of BDO Seidman. And because audits lag returns by about a year or two, this year's filers may face a greater chance of being audited as the IRS ramps up. (The IRS generally has three years in which to pull a return for audit.)

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