SC Tax Assessments Double as Income Tax Audits Triple

State tax audit activity intensified sharply in fiscal year 2025, as the South Carolina Department of Revenue assessed $371.7 million in additional tax — more than the previous two fiscal years combined — while individual income tax audits nearly tripled over four years.

The South Carolina Department of Revenue (SCDOR) assessed $371.7 million in additional tax during fiscal year 2025, more than double the $175.1 million assessed the previous year, and a figure that exceeded the combined tax assessments of FY 2023 and FY 2024. The data comes from a public records response covering audit activity, collections, offers in compromise, penalty abatements, desk audits, and appeals from fiscal years 2021 through 2025.

The records raise questions about what is driving the increase in South Carolina tax audits and why more taxpayers than ever are being selected for an audit, particularly for individual income tax returns.

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Tax Assessments More Than Double in a Single Year

Total tax assessments across all audit types rose from $175.1 million in FY 2024 to $371.7 million in FY 2025, an increase of 112.2%. Over the full four-year period from FY 2022 through FY 2025, the SCDOR assessed $914,972,096 in additional tax.

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The FY 2025 figure alone represents 40.6% of all tax assessments over the four-year period — meaning the most recent fiscal year produced less additional tax revenue than the three prior years combined.

Individual Income Tax Audits Nearly Triple

The most significant driver of the audit increase appears to be individual income tax examinations. The SCDOR initiated 1,190 individual income tax audits in FY 2025, compared to 410 in FY 2022 — a 190.2% increase. The growth accelerated in the most recent years, climbing from 467 audits in FY 2023 to 807 in FY 2024 (+73%), then to 1,190 in FY 2025 (+48%).

Sales and use tax audits remained the largest audit category by volume, with 3,716 initiated over four years — largely covering sales and use tax returns filed by businesses — but grew at a far more modest 6.9% over the same period.

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A Widening Audit Backlog

The gap between audits initiated and audits closed has widened each year, a pattern the records show across all audit categories combined.

The gap grew from a single audit in FY 2022 to 268 in FY 2025. A growing backlog can extend the time it takes for open audits to reach a final assessment, though the department's response did not include data on average audit duration.

How the SCDOR Audit Process Works

To understand what the FY 2025 numbers mean for taxpayers, it helps to know the audit process the SCDOR follows once a return is selected for an audit. This differs from the process used by county auditors for property tax and millage rate matters, which are administered separately at the county level rather than by the SCDOR.

According to the SCDOR's own published guidance, the audit process generally follows these steps:

• Notice: The audit process begins when the taxpayer receives an initial contact letter from the auditor, which lists the specific documentation requested for the audit. The letter includes a list of audit items requested, and the taxpayer provides that documentation before any meeting takes place, typically through the SCDOR's secure file-sharing tool or MyDORWAY's document upload feature. 

Responding promptly and completely to this initial notice is one of the most effective ways a taxpayer can keep an audit on schedule, since incomplete or delayed responses are a common reason audits stretch past their expected timeline. 

• Examination: For a field audit, the process begins with an Audit Appointment Letter (AS-5), and the taxpayer typically uploads records through the SCDOR's secure filing tools. Field audits can be conducted electronically or in person, and the initial audit appointment letter from the auditor already includes the supporting document request before the examination begins. 

Desk audits, which cover a narrower scope than field audits, are generally handled by mail. Most desk audits are resolved within 60 days, after which the SCDOR issues an assessment if it cannot obtain the needed information from the taxpayer.

• Power of attorney and waiver: Taxpayers working with a representative during a field audit typically submit a power of attorney form, authorizing that representative to communicate with the SCDOR and act on the taxpayer's behalf throughout the examination. 

During a field audit, the taxpayer should also provide a completed Power of Attorney form and a Statute of Limitations Waiver, if applicable, since the waiver gives the SCDOR additional time to complete the examination without triggering an automatic assessment. Without these forms on file, the auditor may be unable to discuss the case with a representative or may need to issue a proposed assessment sooner than the audit would otherwise require.

• Proposed assessment: If the auditor determines additional tax is due, the SCDOR issues a Notice of Proposed Assessment. In some cases, the taxpayer may also sign a Waiver of Restrictions on Assessments, known by its form number, SC-870, to accept the adjustment without proceeding to a formal proposed assessment. 

If a taxpayer accepts the auditor's findings, they may pay the assessment in full, or sign Form SC-870 if full payment is not immediately possible.

• Protest and appeal: Taxpayers who disagree with a proposed assessment have 90 days from the date of the notice to file a written protest with the SCDOR. A taxpayer who disagrees with the findings on a proposed assessment has 90 days from the date of the notice to file a written protest, and if the protest is filed within that window, the SCDOR will not attempt to collect the tax or take further action until the matter is resolved. 

If the dispute is not resolved at that stage, the matter proceeds to a Department Determination, and the taxpayer then has 30 days to request a contested case hearing before the South Carolina Administrative Law Court, the state's tax court.

Given the scale of the FY 2025 increase, more South Carolina taxpayers than in prior years are likely to be navigating this notice-to-appeal process for the first time, which is why understanding each stage — and the applicable deadlines — matters for anyone selected for an audit.

Taxpayers with questions about a specific audit or proposed assessment should consult a tax attorney, CPA, or enrolled agent for individualized guidance; this article describes general audit procedures and is not a substitute for a professional consultation.

Desk Audit Dollars Surge

The SCDOR's individual income tax desk audit program — which handles cases through correspondence rather than field examinations — assessed $100,564,931 in FY 2024-25, up from $55,318,944 in FY 2021-22, an 81.8% increase. The number of desk audits assessed rose from 35,202 to 48,252 over the same period, while the average assessment per desk audit increased from approximately $1,571 to $2,084, a 32.6% rise in per-case yield.

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Desk audits often stem from automated data matching against W-2s and 1099s — a process similar in concept to the IRS's own document-matching program at the federal level — rather than an individual examiner's referral. In these cases, the taxpayer generally bears the burden of substantiating the original tax return, and an unanswered notice can result in a default assessment without a formal examination process.

Collections Activity Climbed 34%

Resolution and collections activity — the department's broader efforts to resolve outstanding tax liability — rose from 20,330 in FY 2021 to 27,282 in FY 2025, a 34.2% increase. Total reported collections revenue across the period was $96,157,503.

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The department did not provide several specific collection metrics, including wage garnishment counts, tax lien filings, and payment plan data (establishments, terminations, and active counts), each of which was marked "information not accessible" in the response. It also did not disclose whether any tax billing adjustments were issued in connection with these collection totals.

Penalty Relief Declined While Assessments Doubled

Penalty abatement — relief granted to taxpayers who demonstrate reasonable cause for a filing or payment issue — declined from $7,389,442 in FY 2021 to $6,411,972 in FY 2025, a 13.2% decrease, even as total tax assessments nearly doubled over a comparable window.

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Offer in Compromise: A Program Few Use

South Carolina's Offer in Compromise (OIC) program allows qualifying taxpayers to settle a tax liability for less than the full amount owed. Submissions to the program remained low across all five years covered by the records request.

For a state with more than 5.3 million residents, an average of 29 OIC submissions per year works out to roughly one submission for every 183,000 residents annually. The department's response did not indicate how many of those submissions were accepted, rejected, or withdrawn — the OIC acceptance rate was not provided, which the records show as one of the more significant gaps in the dataset.

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Tax Appeals and Litigation

The department's response to tax appeals and litigation activity was provided only in aggregate, without year-by-year figures.

Approximately 46% of appeals were resolved at the administrative level, and roughly 25% proceeded to litigation. The department noted the underlying document contained redactions, and the response did not break the figures out by fiscal year.

Government Context Review

The SCDOR publishes annual reports and accountability reports on its transparency page. These Tier 2 government sources were consulted for context on the FY 2025 audit trends, but did not include an explanation for the increases documented in the records request.

The department reported collecting more than $50 million from its top delinquent taxpayers list in April 2026, according to an SCDOR news release. SCDOR's public "Who We Are" materials state that the agency employs more than 700 staff across 11 locations and collects approximately $17 billion annually, with about 95% of the state's general fund flowing through the agency.

No official explanation was located in publicly available SCDOR publications for the 112% increase in total tax assessments from FY 2024 to FY 2025, or the 190% increase in individual income tax audits. Contextual factors that could account for these trends — such as changes to South Carolina tax law, staffing increases, technology upgrades, or new compliance initiatives — have not been publicly addressed by the agency.

This article will be updated as new information becomes available. 

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What the Data Does Not Show

Several data points that would help clarify the scope of the audit increase were not included in the department's response:

• Offer in Compromise acceptance rates: Only submission counts (22 to 35 per year) were provided, without figures on approvals, denials, or withdrawals.
• Collection enforcement tools: Wage garnishment counts, tax lien filings, and payment plan data were marked "information not accessible."
• Audit outcomes by result type: The department provided audit initiation and closure counts, but did not break out results — no change, additional assessment, or refund.
• Appeals by year: Appeals data (138 filed, 64 resolved, 34 sent to litigation) was provided only in aggregate.
• Payment plan activity: Not included in the response at all.

These gaps limit outside assessment of the full taxpayer impact, including how frequently an audit closes with no additional tax due, what share of OIC applications ultimately succeed, and how aggressively the department pursues liens and garnishments against delinquent accounts.

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Questions Raised by the Data

The records leave several questions unanswered:

1. What drove the FY 2025 assessment spike? 

The $196.6 million increase in a single year was not accompanied by any publicly available agency explanation. A jump of this size — more than doubling the prior year's total — would typically follow a change in state tax law, a new compliance initiative, or a shift in audit selection criteria, none of which SCDOR has addressed in its public materials. Until the department responds to the request for comment, the cause of the spike remains unconfirmed.

2. Why did individual income tax audits nearly triple?

The acceleration from 410 to 1,190 initiated audits suggests a deliberate shift in audit priorities, but no policy rationale has been identified in the records or in SCDOR's public communications. The growth was not gradual — it accelerated sharply in the two most recent fiscal years, climbing 73% from FY 2023 to FY 2024 and another 48% from FY 2024 to FY 2025. That pattern points to a specific programmatic change in how taxpayers are selected for an audit, though the department has not confirmed what changed.

3. Why are OIC submissions so low? 

An average of 29 per year for 5.3 million residents raises questions about program accessibility, taxpayer awareness, and eligibility criteria. Because the department did not disclose how many of those submissions were ultimately accepted, it is unclear whether low volume reflects limited taxpayer interest, strict qualifying standards, or a combination of both. Comparable programs in other states process submissions at meaningfully higher rates relative to population, a comparison this dataset cannot fully support without SCDOR's acceptance-rate data.

4. Did staffing or technology changes enable the audit increase? 

The department employs over 700 staff, but resource allocation data — such as headcount changes in the audit division or investments in data-matching technology — was not included in the response. A staffing increase, a new case-selection algorithm, or expanded access to third-party income data could each independently explain a jump in desk audits and individual income tax audits. Without that information, it is not possible to determine which factor, if any, is responsible for the increase.

5. How do South Carolina's audit outcomes compare to those of other states? 

Without outcome data — no-change rates versus additional-assessment rates — cross-state comparisons are limited. A state that closes a high share of audits with no additional tax owed is operating differently from one where nearly every audit results in an assessment, and South Carolina's response does not indicate which pattern applies here. Future public records requests to neighboring states, including North Carolina and Georgia, would be needed to place South Carolina's audit volume and yield in a regional context.

These questions are identified for future reporting and may be addressed if the department responds to the request for comment.

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Methodology

This article is based on data provided by the South Carolina Department of Revenue in response to a public records request, and on the SCDOR's published audit and appeals process guidance cited above. The records data covers audit activity by type (initiated and closed), total tax assessments, resolution and collections activity, Offer in Compromise submissions, individual income tax desk audit assessments, penalty abatements, and appeals and litigation activity, as governed in part by the South Carolina Code of Laws, Title 12.

South Carolina's fiscal tax year runs from July 1 through June 30. FY 2022 covers July 1, 2021, through June 30, 2022; FY 2025 covers July 1, 2024, through June 30, 2025. Desk audit and OIC data were provided in fiscal-year ranges (for example, FY 2021-22) rather than single years.

All figures are sourced directly from the government records response or from SCDOR's published guidance, as cited. No private or third-party data was used. Where the department marked data as "information not accessible," that limitation has been noted throughout this article.

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External Sources

• South Carolina Department of Revenue — public records response received via a Freedom of Information Act request; copy on file with the author
• South Carolina Department of Revenue Transparency Reports
• South Carolina Department of Revenue News Releases
• SCDOR Audit Process
• SCDOR Appeals Process
• South Carolina Code of Laws, Title 12